SBI Project

SUBMITTED BY: PRADIPTA KUMAR SAMANTA| ROLL NO: 11MBAS21541
FOR
A Report Submitted In Partial Fulfillment of the Requirement of
MBA Program
Submitted By:
PRADIPTA KUMAR SAMANTA
Roll No : 11MBAS21541
In Guidance With:
MANOJ KUMAR MISHRA
BRANCH MANAGER
SBI, TALCHER
DDCE, SAMBALPUR UNIERSITY
JYOTI IHAR, BURLA
1
EXAMINER CERTIFICATE
This Project is Submitted by Pradipta Kumar Samanta Non Perfornming
Assets Of State Bank Of India of MBA under DDCE, Sambapur
!ni"ersity and for#arded for e"aution$
%nterna e&aminer E&ternae&aminer
2
DECLARATION
% hereby decare that the project NON PERFORNMIN ASSETS OF
STATE BAN! OF IN"IA# is my sincere effort$ % ha"e prepared this interim
report soey as a part of my MBA pro'ram$ % ha"e done the project under the
'uidance of Mr$ Manik C%and %os%, our facuty of R"& Com'(ter )
Management, Ta*+%er and Mano, !(mar Mis%ra -SBI, Ta*+%er.$

This report has not been submitted to (r'ani)ation or educationa
institute before for any academic Purpose or i*e$ The information contained in
this document is for 'enera 'uidance on matters of interest ony$ %t shoud not
be used as a substitute for consutation #ith professiona and competent
ad"isors$ +hie #e ha"e made e"ery attempt to ensure that the information
contained in this document has been obtained from reiabe sources, #e are not
responsibe for errors or omissions, or for the resuts obtained from the use of
this information$ A information in this document is pro"ided is #ith no
'uarantee of competeness, accuracy, timeiness or of the resuts obtained from
the use of this information, and #ithout #arranty of any *ind, e&press or
impied$ %n no e"ent #i #e be iabe for any decision made or action ta*en in
reiance on the information in this document for any conse,uentia, specia or
simiar dama'es, e"en if ad"ised of the possibiity of such dama'es$

Pradipta Kumar Samanta
Ro** No$ / 00MBAS10230
3
CERTIFICATE
This is to certify that Pradipta Kumar Samanta, a student of
DDCE, Sambapur !ni"ersity has prepared under a Project
-eport Tited Non Perfornming Assets Of State Bank Of India#. as a
partia fufiment of MBA$ This has not formed a basis for the
a#ard of any De'ree .Dipoma by this uni"ersity or any other
uni"ersity$
+e #ish a success in his future endea"or$
M!"o# K$%!&
M'()&!
SBI, T!l*)+&
4
ACKNO,LEDGEMENT
% ac*no#ed'e my deep sense of 'ratitude to my facuty 'uide
Mr$ Manik Chand Ghosh from R" Com'(ter ) Management, Ta*+%er #ithout
#hose sincere 'uidance and support this project #oud not ha"e been a success$

% #oud i*e to than* Mr$ Mano, !(mar Mis%ra /Branch Mana'er,
SB%, Tacher$0 my company 'uide #hose sincere 'uidance heped this project to
materiai)e$
% aso ac*no#ed'e my deep sense of 'ratitude to a the empoyees of
SB% for hepin' me durin' the project$ By interactin' #ith them % ha"e earnt
many important and usefu ad"ices #hich #i hep me in buidin' my future
career$
1inay, % ta*e this opportunity to than* my parents for their patience and
o"e to#ards me$ 2ast but not the east % than* my friends #ho heped me to
coect information ree"ant to my project$
Pradipta Kumar Samanta
Ro**$No$ / 00MBAS10230

5
CERTIFICATE OF APPRO4AL
This is to certify that the Project Report Entitled
!"#" PERF#R"$I"% A&&ET& #F &TATE 'A"( #F I")IA*
Submitted by Pradipta Kumar Samanta /-o 3o$ 44MBAS546740, Sambapur
!ni"ersity, to#ards partia fufiment of the re,uirements for the a#ard of the de'ree
of Master of Business Administration /MBA0 is a bona fide record of the #or* carried
out by him under the abe 'uidance of Mr$ Manik C%and %os%, 1acuty, -D
Computer 8 Mana'ement, Tacher$
/Appro"a of the Center Director0
+
TABLE OF CONTENTS
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MEA3%3; (1 3PA
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,
ABSTRACT
A stron' ban*in' sector is important for fourishin' economy$ The faiure of the
ban*in' sector may ha"e an ad"erse impact on other sectors$ 3on:performin' assets
are one of the major concerns for ban*s in %ndia$
3PAs refect the performance of ban*s$ A hi'h e"e of 3PAs su''ests hi'h
probabiity of a ar'e number of credit defauts that affect the profitabiity and net:
#orth of ban*s and aso erodes the "aue of the asset$ The 3PA 'ro#th in"o"es the
necessity of pro"isions, #hich reduces the o"er a profits and sharehoders "aue$
The issue of 3on Performin' Assets has been discussed at en'th for financia system
a o"er the #ord$ The probem of 3PAs is not ony affectin' the ban*s but aso the
#hoe economy$ %n fact hi'h e"e of 3PAs in %ndian ban*s is nothin' but a refection
of the state of heath of the industry and trade$
The project deas #ith understandin' the concept of 3PAs of State Ban* of %ndia, its
ma'nitude and major causes for an account becomin' non:performin'$ The project
aso incudes a comparison of 3PA of SB% #ith other pubic sector ban*s and the
projection of 3PAs o"er ne&t fi"e years$
The project has focused on the -B% 'uideines to minimi)e the non performin' assets,
re"ised 'uideines for compromise settement of 3on:Performin' Assets /3PAs0 of
different pubic sector ban*s$ %t aso hi'hi'hts the Securiti)ation and -econstruction
of 1inancia Assets and Enforcement of Security %nterest Act, 5AA5 and the roe of
asset -eco"ery Company under SA-1AES% Act, 5AA5$
-
CHAPTER-I
%ndian Ban*in'B A Paradi'm shift:A re'uatory point of "ie#
The decade 'one by #itnessed a #ide ran'e of financia sector reforms, #ith many of
them sti in the process of impementation$ Some of the recenty initiated measures
by the -B% for ris* mana'ement systems, anti money aunderin' safe'uards and
corporate 'o"ernance in ban*s, and re'uatory frame#or* for non ban* financia
companies, urban cooperati"e ban*s, 'o"ernment debt mar*et and fore& cearin' and
payment systems are aimed at streaminin' the functionin' of these instrumentaities
besides ceansin' the aberrations in these areas$ 1urther, one or t#o a %ndia
de"eopment financia institutions ha"e aready commenced the process of mi'ration
to#ards uni"ersa ban*in' set up$ The ban*in' sector has to respond to these chan'es,
consoidate and reai'n their business strate'ies and reach out for technoo'y support
to sur"i"e emer'in' competition$ Perhaps ta*in' note of these chan'es in domestic as
#e as internationa arena
A of #e #i a'ree that re'uatory frame#or* for ban*s #as one area #hich has seen
a sea:chan'e after the financia sector reforms and economic iberaisation and
'obaisation measures #ere introduced in 4CC5:CD$ These reforms foo#ed broady
the approaches su''ested by the t#o E&pert Committees both set up under the
chairmanship of Shri M$ 3arasimham in 4CC4 and 4CCE, the recommendations of
#hich are by no# #e *no#n$ The underyin' theme of both the Committees #as to
enhance the competiti"e efficiency and operationa fe&ibiity of our ban*s #hich
#oud enabe them to meet the 'oba competition as #e as respond in a better #ay
to the re'uatory and super"isory demand arisin' out of such iberaisation of the
financia sector$ Most of the recommendations made by the t#o E&pert Committees
#hich continued to be subject matter of cose monitorin' by the ;o"ernment of %ndia
as #e as -B% ha"e been impemented$ ;o"ernment of %ndia and -B% ha"e ta*en
se"era steps to B:
/a0 Stren'then the ban*in' sector,
/b0 Pro"ide more operationa fe&ibiity to ban*s,
/c0 Enhance the competiti"e efficiency of ban*s, and
/d0 Stren'then the e'a frame#or* 'o"ernin' operations of ban*s$
.
-e'uatory measures ta*en to stren'then the %ndian Ban*in' sectors
The important measures ta*en to stren'then the ban*in' sector are briefy, the
foo#in'B
%ntroduction of capita ade,uacy standards on the ines of the Base norms,
prudentia norms on asset cassification, income reco'nition and pro"isionin',
%ntroduction of "auation norms and capita for mar*et ris* for in"estments
Enhancin' transparency and discosure re,uirements for pubished accounts ,
Ai'nin' e&posure norms F sin'e borro#er and 'roup:borro#er ceiin' F #ith
inter:nationa best practices
%ntroduction of off:site monitorin' system and stren'thenin' of the
super"isory frame#or* for ban*s$
/A0 Some of the important measures introduced to pro"ide more operationa
fe&ibiity to ban*s areB
Besides dere'uation of interest rate, the boards of ban*s ha"e been 'i"en the
authority to fi& their prime endin' rates$ Ban*s aso ha"e the freedom to offer
"ariabe rates of interest on deposits, *eepin' in "ie# their o"era cost of
funds$
Statutory reser"e re,uirements ha"e si'nificanty been brou'ht do#n$
The ,uantitati"e firm:specific and industry:specific credit contros #ere
aboished and ban*s #ere 'i"en the freedom to depoy credit, based on their
commercia jud'ment, as per the poicy appro"ed by their Boards$
The ban*s #ere 'i"en the freedom to recruit speciaist staff as per their
re,uirements,
The de'ree of autonomy to the Board of Directors of ban*s #as substantiay
enhanced$ Ban*s #ere 'i"en autonomy in the areas of business strate'y such
as, openin' of branches . administrati"e offices, introduction of ne# products
and certain other operationa areas$
/B0 Some of the important measures ta*en to increase the competiti"e efficiency of
ban*s are the foo#in'B
(penin' up the ban*in' sector for the pri"ate sector participation$
1/
Scain' do#n the sharehodin' of the ;o"ernment of %ndia in nationai)ed
ban*s and of the -eser"e Ban* of %ndia in State Ban* of %ndia$
/C0 Measures ta*en by the ;o"ernment of %ndia to pro"ide a more conduci"e e'a
en"ironment for reco"ery of dues of ban*s and financia institutions areB
Settin' up of Debt -eco"ery Tribunas pro"idin' a mechanism for e&peditious
oan reco"eries$
Constitution of a 9i'h Po#er Committee under former <ustice Shri Eradi to
su''est appropriate forecosure a#s$
An appropriate e'a frame#or* for securitisation of assets is en'a'in' the
attention of the ;o"ernment,
Due to this paradi'm shift in the re'uatory frame#or* for ban*s had achie"ed the
desired resuts$ The ban*in' sector has sho#n considerabe de'ree of resiience$
/a0 The e"e of capita ade,uacy of the %ndian ban*s has impro"edB the C-A- of
pubic sector ban*s increased from an a"era'e of C$7GH as on March D4, 4CC6 to
44$4EH as on March D4, 5AA4$
/b0 The pubic sector ban*s ha"e aso made si'nificant pro'ress in enhancin' their
asset ,uaity, enhancin' their pro"isionin' e"es and impro"in' their profits$
The 'ross and net 3PAs of pubic sector ban*s decined sharpy from 5D$5H
and 47$6H in 4CC5:CD to 45$7AH and G$IH respecti"ey, in 5AAA:A4$
Simiary, in re'ard to profitabiity, #hie E ban*s in the pubic sector recorded
operatin' and net osses in 4CC5:CD, a the 5I ban*s in the pubic sector
sho#ed operatin' profits and ony t#o ban*s posted net osses for the year
ended March D4, 5AA4$
The operatin' profit of the pubic sector ban*s increased from -s$6G5E crore
as on March D4, 4CC6 to -s$4D,ICD crore as on March D4, 5AA4$
The net profit of pubic sector ban*s increased from -s$444G crore to -s$7D4I
crore durin' the same period, despite ti'htenin' of prudentia norms on
pro"isionin' a'ainst oan osses and in"estment "auation$
The accountin' treatment for impaired assets is no# coser to the internationa best
practices and the fina accounts of ban*s are transparent and more amenabe to
meanin'fu interpretation of their performance$
11
CHAPTER-II
O5,e+ti6es of t%e st(d7
The study #as underta*en as a part of the course curricuum of the P;DM course
under DDCE , Sambapur !ni"ersity, Sambapur$ The objecti"e of my study are as
foo#s$

i$ To understand the meanin' 8 nature of 3PAs$
ii$ To e&amine the causes for 3PAs of State Ban* of %ndia$

iii$ To compare the 3PA of SB% #ith other pubic sector ban*s$
i"$ To find out the #ays to protect the assets from bein' 3PA$
=$ To study the pro"isions of #ritin' off 3PAs$
12
CHAPTER-III
Bac*'round of the company
State Ban* of %ndia /SB%0, Mumbai Main Branch
State Bank of India / 0 /SB%0 is the ar'est ban* in %ndia$
The ban* traces its ancestry to British %ndia, throu'h the %mperia Ban* of %ndia, to
the foundin' in 4EAG of the Ban* of Cacutta, ma*in' it the odest commercia ban* in
the %ndian Subcontinent$ The ;o"ernment of %ndia nationaised the %mperia Ban* of
%ndia in 4C66, #ith the -eser"e Ban* of %ndia ta*in' a GAH sta*e, and renamed it the
State Ban* of %ndia$ %n 5A44, the ;o"ernment too* o"er the sta*e hed by the -eser"e
Ban* of %ndia$
SB% pro"ides a ran'e of ban*in' products throu'h its "ast net#or* in %ndia and
o"erseas, incudin' products aimed at 3-%s$ The State Ban* ;roup, #ith o"er 4GAAA
branches, has the ar'est branch net#or* in %ndia$ +ith an asset base of J56A biion
and J4C6 biion in deposits, it is a re'iona ban*in' behemoth$ %t has a mar*et share
amon' %ndian commercia ban*s of about 5AH in deposits and ad"ances, and SB%
accounts for amost one:fifth of the nationKs oans$
SB% has tried to reduce o"er:staffin' by computeri)in' operations and ;oden
handsha*e schemes that ed to a fi'ht of its best and bri'htest mana'ers$ These
mana'ers too* the retirement ao#ances and then #ent on to become senior
mana'ers in ne# pri"ate sector ban*s$
13
The State ban* of %ndia is the 5Cth most reputed company in the #ord accordin' to
1orbes$
State Ban* of %ndia is one of the Big Four Banks of %ndia #ith %C%C% Ban*, A&is Ban*
and 9D1C Ban*$
Histor7
The roots of the State Ban* of %ndia rest in the first decade of 4Cth century, #hen the
Ban* of Cacutta, ater renamed the Ban* of Ben'a, #as estabished on 5 <une 4EAG$
The Ban* of Ben'a and t#o other Presidency ban*s, namey, the Ban* of Bombay
/incorporated on 46 Apri 4E7A0 and the Ban* of Madras /incorporated on 4 <uy
4E7D0$ A three Presidency ban*s #ere incorporated as joint stoc* companies, and
#ere the resut of the roya charters$ These three ban*s recei"ed the e&cusi"e ri'ht to
issue paper currency in 4EG4 #ith the Paper Currency Act, a ri'ht they retained unti
the formation of the -eser"e Ban* of %ndia$ The Presidency ban*s ama'amated on 5I
<anuary 4C54, and the reor'ani)ed ban*in' entity too* as its name %mperia Ban* of
%ndia$ The %mperia Ban* of %ndia continued to remain a joint stoc* company$
Pursuant to the pro"isions of the State Ban* of %ndia Act /4C660, the -eser"e Ban* of
%ndia, #hich is %ndiaLs centra ban*, ac,uired a controin' interest in the %mperia
Ban* of %ndia$ (n DA Apri 4C66 the %mperia Ban* of %ndia became the State Ban* of
%ndia$ The ;o"t$ of %ndia recenty ac,uired the -eser"e Ban* of %ndiaLs sta*e in SB%
so as to remo"e any confict of interest because the -B% is the countryLs ban*in'
re'uatory authority$
%n 4C6C the ;o"ernment passed the State Ban* of %ndia /Subsidiary Ban*s0 Act,
enabin' the State Ban* of %ndia to ta*e o"er ei'ht former State:associated ban*s as
its subsidiaries$ (n Sept 4D, 5A44, State Ban* of Saurashtra, one of its Associate
Ban*s, mer'ed #ith State Ban* of %ndia$
SB% has ac,uired oca ban*s in rescues$ 1or instance, in 4CE6, it ac,uired Ban* of
Cochin in Keraa, #hich had 45A branches$ SB% #as the ac,uirer as its affiiate, State
Ban* of Tra"ancore, aready had an e&tensi"e net#or* in Keraa
Internationa* 'resen+e
14
The ban* has 474 o"erseas offices spread o"er D5 countries as on D4st Dec 5AAC$ %t
has branches of the parent in Coombo, Dha*a, 1ran*furt, 9on' Kon', <ohannesbur',
2ondon and en"irons, 2os An'ees, Mae in the Madi"es, Muscat, 3e# >or*, (sa*a,
Sydney, and To*yo$ %t has offshore ban*in' units in the Bahamas, Bahrain, and
Sin'apore, and representati"e offices in Bhutan and Cape To#n$
SB% operates se"era forei'n subsidiaries or affiiates$ %n 4CCA it estabished an
offshore ban*, State Ban* of %ndia /Mauritius0$
%n 4CE5, the ban* estabished a subsidiary, State Ban* of %ndia /Caifornia0, #hich
no# has ei'ht branches : se"en branches in the state of Caifornia and one in
+ashin'ton DC that it opened on 5D 3o"ember 5AAC$ The se"en branches in
Caifornia are ocated in 2os An'ees, Artesia, San <ose, Cano'a Par*, 1resno, San
Die'o and Ba*ersfied$
The Canadian subsidiary, State Ban* of %ndia /Canada0 too dates to 4CE5$ %t has se"en
branches, four in the 'reater Toronto area and three in British Coumbia$
%n 3i'eria SB% operates as %3MB Ban*$ This ban* be'an in 4CE4 as the %ndo:
3i'erian Merchant Ban* and recei"ed permission in 5AA5 to commence retai
ban*in'$ %t no# has fi"e branches in 3i'eria$
%n 3epa SB% o#ns 6AH of 3epa SB% Ban*, #hich has branches throu'hout the
country$ %n Mosco# SB% o#ns GAH of Commercia Ban* of %ndia, #ith Canara Ban*
o#nin' the rest$ %n %ndonesia it o#ns IGH of PT Ban* %ndo Mone&$
State Ban* of %ndia aready has a branch in Shan'hai and pans to open one up in
Tianjin$
Present scenario
+ith its presence "irtuay in a the important centers of the country, State Ban* of
%ndia offers a #ide "ariety of ban*in' ser"ices #hich incude corporate and persona
ban*in', industria finance, a'ricutura finance, financin' of trade and internationa
ban*in'$ Amon' the cients of the Ban* are %ndian con'omerates, medium and sma
industria units, e&porters, non:resident %ndians and mutinationa companies$ The
15
ar'e presence and "ast resource base ha"e heped the Ban* to buid stron' in*s #ith
trade and industry$
State Ban* of %ndia is ser"in' customers throu'h 45AAA (ffices 8 ar'est amon'st
3ationai)ed Ban*s$
State Ban* of %ndia #ith 5A7 year tradition of sound and prudent ban*in' is one
amon' DAA 'oba companies and se"en %ndian companies #hich are e&pected to
emer'e as chaen'ers to +ordKs eadin' bue chip companies$ +hie amon' top 4AAA
#ord ban*s, The Ban*erM, the eadin' ma'a)ine in 2ondon, has paced SB% at the
57Eth position, the ban* features at 5Cth position amon' 1orbeKs ;oba 6AA ist of
'oba 'iants and fast 'ro#in' companies$
At the same time, the ban* has been conscious of its socia responsibiities by
financin' a'ricuture and aied acti"ities and sma scae industries /SS%0$
Considerin' the importance of sma scae industries ban* has estabished speciai)ed
branches to finance e&cusi"ey such industries$
Ban*in' reationship
Stron' correspondent ban*in' reationship #hich State Ban* of %ndia maintains #ith
o"er 5AA eadin' internationa ban*s a o"er the #ord enhances its capabiities to
hande transactions #ord:#ide$ Besides, ban* has -upee Dra#in' Arran'ements
#ith e&chan'e companies in the ;uf and one in Sin'apore$ Ban* is a member of the
S+%1T and so many branches of the ban* are connected throu'h its computer:based
termina at Mumbai$ +ith its state:of:art deain' rooms and #e:trained deaers, the
ban* offers efficient fore& deain' operations in %ndia$
SB% (nine
Keepin' in tune #ith chan'in' times and to pro"ide its customers more efficient and
speedy ser"ice, the Ban* has ta*en major initiati"e in the fied of computeri)ation$ A
the Branches of the Ban* ha"e been computeri)ed$ The Ban* has aso aunched
a''ressi"ey the concept of NAny Time, Any +here Ban*in'N throu'h the
1+
introduction of Centrai)ed Ban*in' Soution /CBS0 and o"er 45AAA offices ha"e
aready been brou'ht under its ambit$
SB% aso offers %nternet Ban*in' ser"ices in the country for Corporates as #e as
indi"iduas$ %nternet Ban*in' ser"ices are a"aiabe throu'h a Branches of the Ban*
net#or*ed under CBS$ Pro"idin' 57 hours, DG6 days ban*in' ri'ht from the PC of the
user, %nternet Ban*in' offers #ord cass ban*in' faciities i*e anytime, any#here
access to account, compete detais of transactions, and statement of account, onine
information of deposits, oans o"erdraft account etc$
SB% has recenty introduced (nine Payment 1aciity for rai#ay reser"ation throu'h
%-CTC Payment ;ate#ay Project and (nine !tiity Bi Payment Ser"ices #hich
ao#s %nternet Ban*in' account hoders to pay their teephone, mobie, eectricity,
insurance and other bis anytime from any#here from their des*top$ The foo#in'
are some of the ser"ices a"aiabe onineB
Access to account
Compete detais of transactions and statement of account
(nine information of deposits, oans o"erdraft account etc$
(nine Payment 1aciity for rai#ay reser"ation throu'h %-CTC Payment
;ate#ay Project
(nine !tiity Bi Payment Ser"ices #hich ao#s %nternet Ban*in' account
hoders to pay their teephone, mobie, eectricity, insurance and other bis
anytime from any#here from their des*top$
Different ser"ices
State Ban* of %ndia #ith 45AAA offices and the ar'est nationai)ed ban* is ser"in' its
customers #ith the foo#in' #ide "ariety of ban*in' ser"icesB
Corporate ban*in'
Persona ban*in'
%ndustria finance
A'ricutura finance
1inancin' of trade
%nternationa ban*in'
1,
Besides that SB% pro"ides "ery hi'h ,uaity ser"ices to its customers$ 1e# of
them can be hi'hi'hted as foo#s
-emittances to %ndia #ith free ser"ices to o"er 45AAA branches of SB% in
%ndia$
Current account #ith no minimum baance for indi"iduas$
Business accounts for Proprietorships, Partnerships, Companies, Trusts,
Societies, etc$
Easy sa"in' account $
3-% 8 1C3- account #ith SB% Branches in %ndia in Pound Sterin', !S
Doar and Euros$
En,uiry faciity of accounts #ith SB% in %ndia$
Attracti"e 1i&ed Deposit Accounts$
ATM Fa+i*it7
Another step ta*en by SB% in meetin' the chan'in' aspirations of its cientee is the
aunch of its Debit card, #hich is aso an ATM card$ %t enabes the card hoder to buy
'oods and ser"ices at o"er CC5IA merchant estabishments across the country$
Besides, the card can be used to #ithdra# cash at more than 56AAA ATMs, #here the
LMaestroL o'o is dispayed, apart from the SB%Ks o"er 46AAA ATMs and tie up
arran'ements #ith other Ban*s$
State Ban* of %ndia Card user can buy 'oods and enabe ser"ices from 76,AAA
merchant outets in %ndia and can #ithdra# cash from o"er 56AAA ATMs #ith its o#n
46AAA ATMs$
Asso+iate 5anks
There are si& associate ban*s that fa under SB%, and to'ether these si& ban*s
constitute the State Ban* ;roup$ A use the same o'o of a bue *eyhoe and a the
associates use the NState Ban* ofN name foo#ed by the re'iona head,uartersL name$
(ri'inay, the then se"en ban*s that became the associate ban*s beon'ed to princey
states unti the 'o"ernment nationai)ed them bet#een (ctober, 4C6C and May, 4CGA$
%n tune #ith the first 1i"e >ear Pan, emphasi)in' the de"eopment of rura %ndia, the
'o"ernment inte'rated these ban*s into State Ban* of %ndia to e&pand its rura
1-
outreach$ There has been a proposa to mer'e a the associate ban*s into SB% to create
a Nme'a ban*N and streamine operations$ The first step aon' these ines occurred on
4D Au'ust 5A44 #hen State Ban* of Saurashtra mer'ed #ith State Ban* of %ndia,
#hich reduced the number of state ban*s from se"en to si&$ 1urthermore on 4Cth <une
5AAC the SB% board appro"ed the mer'er of its subsidiary, State Ban* of %ndore, #ith
itsef$ SB% hods CE$DH in the ban*, and the baance 4$IIH is o#ned by indi"iduas,
#ho hed the shares prior to its ta*eo"er by the 'o"ernment$
The ac,uisition of State Ban* of %ndore #i hep SB% add 7IA branches to its e&istin'
net#or* of 44,77E$ Aso, foo#in' the ac,uisition, SB%Ks tota assets #i inch "ery
cose to the -s 4A:a*h crore mar*$ Tota assets of SB% and the State Ban* of %ndore
stood at -s CCE,44C crore as on March 5AAC$
The Subsidiaries of SB% ti date
State Ban* of %ndore
State Ban* of Bi*aner 8 <aipur
State Ban* of 9yderabad
State Ban* of Mysore
State Ban* of Patiaa
State Ban* of Tra"ancore
ro8t%
State Ban* of %ndia has often acted as 'uarantor to the %ndian ;o"ernment, most
notaby durin' Chandra She*harLs tenure as Prime Minister of %ndia$ +ith 44,77E
branches and a further G6AAO associate ban* branches, the SB% has e&tensi"e
co"era'e$ State Ban* of %ndia has eectronicay net#or*ed a of its branches under
Core Ban*in' System /CBS0$ The ban* has one of the ar'est ATM net#or*s in the
re'ion, #ith more than 46AAA ATMs across %ndia$ The State Ban* of %ndia has had
steady 'ro#th o"er its history, thou'h it #as marred by the 9arshad Mehta scam in
4CC5$ %n recent years, the ban* has sou'ht to e&pand its o"erseas operations by buyin'
forei'n ban*s$ %t is the ony %ndian ban* to feature in the top 4AA #ord ban*s in the
1ortune ;oba 6AA ratin' and "arious other ran*in's$
1.
ro(' +om'anies
SB% Capita Mar*ets 2td
SB% Mutua 1und /A Trust0
SB% 1actors and Commercia Ser"ices 2td
SB% D19% 2td
SB% Cards and Payment Ser"ices P"t 2td
SB% 2ife %nsurance Co$ 2td : Bancassurance /2ife %nsurance0
SB% 1unds Mana'ement P"t 2td
SB% Canada
2/
CHAPTER-I
NON&PERFORMIN ASSETS

INTRO"9CTION
The #ord is 'oin' faster in terms of ser"ices and physica products$ 9o#e"er it has
been researched that physica products are a"aiabe because of the ser"ice industries$
%n the nation economy aso, ser"ice industry pays "ita roe in the boostin' up of the
economy$ The nations i*e !$S, !$K, and <apan ha"e ser"ice industries more than
66H$ Ban*in' sector reforms in %ndia has pro'ressed prompty on aspects i*e interest
rate dere'uation, reduction in statutory reser"e re,uirements, prudentia norms for
interest rates, asset cassification, income reco'nition and pro"isionin'$ But it coud
not match the pace #ith #hich it #as e&pected to do$ The accompishment of these
norms at the e&ecution sta'es #ithout restructurin' the ban*in' sector as such is
creatin' ha"oc$
The efficiency of a ban* is not a#ays refected ony by the si)e of its baance sheet
but by the e"e of return on its assets$ 3PAs do not 'enerate interest income for the
ban*s, but at the same time ban*s are re,uired to ma*e pro"isions for such 3PAs
from their current profits$ The main aim of any person is the utii)ation money in the
best manner since the %ndia is country #here more than haf of the popuation has
probem of runnin' the famiy in the most efficient manner$ 9o#e"er %ndian peope
faced ar'e number of probem ti the de"eopment of the fu:fed'ed ban*in' sector$
The %ndian ban*in' sector came into the de"eopin' nature mosty after the 4CC4
'o"ernment poicy$ The ban*in' sector has reay heped the %ndian peope to utii)e
the sin'e money in the best manner as they #ant$ Peope no# ha"e started in"estin'
their money in the ban*s and ban*s aso pro"ide 'ood returns on the deposited
amount$ The peope no# ha"e at the most understood that ban*s pro"ide them 'ood
security to their deposits and so e&cess amounts are in"ested in the ban*s$ Thus, ban*s
ha"e heped the peope to achie"e their socio economic objecti"es$ The ban*s not ony
accept the deposits of the peope but aso pro"ide them credit faciity for their
de"eopment$ %ndian ban*in' sector has the nation in de"eopin' the business and
ser"ice sectors$ But recenty the ban*s are facin' the probem of credit ris*$ %t is found
that many 'enera peope and business peope borro# from the ban*s but due to some
21
'enuine or other reasons are not abe to repay bac* the amount dra#n to the ban*s$
The amount #hich is not 'i"en bac* to the ban*s is *no#n as the non performin'
assets$ Many ban*s are facin' the probem of non: performin' assets #hich hampers
the business of the ban*s$ Due to 3PAs the income of the ban*s is reduced$ The #ord
is 'oin' faster in terms of ser"ices and physica products$ 9o#e"er it has been
researched that physica products are a"aiabe because of the ser"ice industries$ %n
the nation economy aso ser"ice industry pays "ita roe in the boostin' up of the
economy$ The nations i*e !$S, !$K, and <apan ha"e ser"ice industries more than
66H$ The ban*in' sector is one of appreciated ser"ice industries$ The ban*in' sector
pays ar'er roe in channei)in' money from one end to other end$ %t heps amost
e"ery person in utii)in' the money at their best$ The ban*in' sector accepts the
deposits of the peope and pro"ides fruitfu return to peope on the in"ested money$
But for pro"idin' the better returns pus principa amounts to the cientsP it becomes
important for the ban*s to earn$ The main source of income for ban*s is the interest
that they earn on the oans that ha"e been disbursed to 'enera person, businessman,
or any industry for its de"eopment$ Thus, #e may find the input:output system in the
ban*in' sector$ Ban*s first, accepts the deposits from the peope and secondy they
end this money to peope #ho are in the need of it$ By the #ay of channei)in'
money from one end to another end, Ban*s earn their profits$
9o#e"er, %ndian ban*in' sector has recenty faced the serious probem of 3on
Performin' Assets$ This probem has been emer'ed ar'ey in %ndian ban*in' sector
since three decade$ Due to this probem many Pubic Sector Ban*s ha"e been
ad"ersey affected to their performance and operations$ %n simpe #ords 3on
Performin' Assets probem is one #here ban*s are not abe to recoect their anded
money from the cients or cients ha"e been in such a condition that they are not in the
position to pro"ide the borro#ed money to the ban*s$ The probem of 3PAs is dan'er
to the ban*s because it destroys the heathy financia conditions of them$ The trust of
the peope #oud not be any more if the ban*s ha"e hi'her 3PAs$ So$ The probem of
3PAs must be tac*ed out in such a #ay that #oud not destroy the operationa,
financia conditions and #oud not affect the ima'e of the ban*s$ -ecenty, -B% has
ta*en number steps to reduce 3PAs of the %ndian ban*s$ And it is aso found that the
many ban*s ha"e sho#n positi"e fi'ures in reducin' 3PAs as compared to the past
years$
22
Rationa*e of t%e st(d7
A stron' ban*in' sector is important for fourishin' economy$ The faiure of the
ban*in' sector may ha"e an ad"erse impact on other sectors$ 3on:performin' assets
are one of the major concerns for ban*s in %ndia$
3PAs refect the performance of ban*s$ A hi'h e"e of 3PAs su''ests hi'h
probabiity of a ar'e number of credit defauts that affect the profitabiity and net:
#orth of ban*s and aso erodes the "aue of the asset$ The 3PA 'ro#th in"o"es the
necessity of pro"isions, #hich reduces the o"er a profits and sharehoders "aue$
The issue of 3on Performin' Assets has been discussed at en'th for financia system
a o"er the #ord$ The probem of 3PAs is not ony affectin' the ban*s but aso the
#hoe economy$ %n fact hi'h e"e of 3PAs in %ndian ban*s is nothin' but a refection
of the state of heath of the industry and trade$
The main aim behind ma*in' this report is to *no# ho# Pubic Sector Ban*s are
operatin' their business and ho# 3PAs pay its roe to the operations of the Pubic
Sector Ban*s$ The report 3PAs are cassified accordin' to the sector, industry, and
state #ise$ The present study aso focuses on the e&istin' system in %ndia to so"e the
probem of 3PAs and comparati"e anaysis to understand #hich ban* is payin' #hat
roe #ith concerned to 3PAs$ Thus, the study #oud hep the decision ma*ers to
understand the financia performance and 'ro#th of Pubic Sector Ban*s as compared
to the 3PAs$
ThatKs #hy the study of 3PAKs become necessary due to the abo"e mentioned
reasonsB
They erode current profits throu'h pro"isionin' re,uirements$
They resut in reduced interest income$
They re,uire hi'her pro"isionin' re,uirements affectin' profits and accretion
to capita funds and capacity to increase 'ood ,uaity ris* assets in future, and
They imit recycin' of funds, set in asset:iabiity mismatches, etc$
The #ord is 'oin' faster in terms of ser"ices and physica products$ 9o#e"er it has
been researched that physica products are a"aiabe because of the ser"ice industries$ %n
the nation economy aso ser"ice industry pays "ita roe in the boostin' up of the
economy$ The nations i*e !$S, !$K, and <apan ha"e ser"ice industries more than 66H$
23
The ban*in' sector is one of appreciated ser"ice industries$ The ban*in' sector pays
ar'er roe in channeisin' money from one end to other end$ %t heps amost e"ery
person in utii)in' the money at their best$ The ban*in' sector accepts the deposits of the
peope and pro"ides fruitfu return to peope on the in"ested money$ But for pro"idin'
the better returns pus principa amounts to the cientsP it becomes important for the
ban*s to earn$ The main source of income for ban*s is the interest that they earn on the
oans that ha"e been disbursed to 'enera person, businessman, or any industry for its
de"eopment$ Thus, #e may find the input:output system in the ban*in' sector$ Ban*s
first, accepts the deposits from the peope and secondy they end this money to peope
#ho are in the need of it$ By the #ay of channeisin' money from one end to another
end, Ban*s earn their profits$
9o#e"er, %ndian ban*in' sector has recenty faced the serious probem of 3on
Performin' Assets$ This probem has been emer'ed ar'ey in %ndian ban*in' sector
since three decade$ Due to this probem many Pubic Sector Ban*s ha"e been
ad"ersey affected to their performance and operations$ %n simpe #ords 3on
Performin' Assets probem is one #here ban*s are not abe to recoect their anded
money from the cients or cients ha"e been in such a condition that they are not in the
position to pro"ide the borro#ed money to the ban*s
The probem of 3PAs is dan'er to the ban*s because it destroys the heathy financia
conditions of them$ The trust of the peope #oud not be anymore if the ban*s ha"e
hi'her 3PAs$ So the probem of 3PAs must be tac*ed out in such a #ay that #oud
not destroy the operationa, financia conditions and #oud not affect the ima'e of the
ban*s$ -ecenty, -B% has ta*en number steps to reduce 3PAs of the %ndian ban*s$
And it is aso found that the many ban*s ha"e sho#n positi"e fi'ures in reducin'
3PAs as compared to the past years
MEANIN OF NPAS
An asset is cassified as non:performin' asset /3PAs0 if the borro#er does not pay
dues in the form of principa and interest for a period of 4EA days$ 9o#e"er #ith
effect from March 5AA7, defaut status #oud be 'i"en to a borro#er if dues #ere not
paid for CA days$ %f any ad"ance or credit faciities 'ranted by ban* to a borro#er
become non:performin', then the ban* #i ha"e to treat a the ad"ances.credit
24
faciities 'ranted to that borro#er as non:performin' #ithout ha"in' any re'ard to the
fact that there may sti e&ist certain ad"ances . credit faciities ha"in' performin'
status$
+9AT %S A 3(3 PE-1(-M%3; ASSET /3PA0
3on Performin' Asset means an asset or account of borro#er, #hich has been
cassified by a ban* or financia institution as sub:standard, doubtfu or oss asset, in
accordance #ith the directions or 'uideines reatin' to asset cassification issued by
-B%$
An amount due under any credit faciity is treated as Npast dueN #hen it has not been
paid #ithin DA days from the due date$ Due to the impro"ement in the payment and
settement systems, reco"ery cimate, up 'radation of technoo'y in the ban*in'
system, etc$, it #as decided to dispense #ith Lpast dueL concept, #ith effect from
March D4, 5AA4$ Accordin'y, as from that date, a 3on performin' asset /3PA0 she
be an ad"ance #here
i$ interest and .or instament of principa remain o"erdue for a period of more
than 4EA days in respect of a Term 2oan,
ii$ the account remains Lout of orderL for a period of more than 4EA days, in
respect of an o"erdraft. cash Credit/(D.CC0,
iii$ the bi remains o"erdue for a period of more than 4EA days in the case of bis
purchased and discounted,
i"$ interest and. or instament of principa remains o"erdue for t#o har"est
seasons but for a period not e&ceedin' t#o haf years in the case of an ad"ance
'ranted for a'ricutura purpose, and
"$ any amount to be recei"ed remains o"erdue for a period of more than 4EA days
in respect of other accounts$
+ith a "ie# to mo"in' to#ards internationa best practices and to ensure 'reater
transparency, it has been decided to adopt the LCA days o"erdueL norm for
identification of 3PAs, form the year endin' March D4, 5AA7$ Accordin'y, #ith effect
25
form March D4, 5AA7, a non:performin' asset /3PA0 she be a oan or an ad"ance
#hereP
i$ interest and .or instament of principa remain o"erdue for a period of more
than CA days in respect of a Term 2oan,
ii$ the account remains Lout of orderL for a period of more than CA days, in respect
of an o"erdraft. cash Credit/(D.CC0,
iii$ the bi remains o"erdue for a period of more than CA days in the case of bis
purchased and discounted,
i"$ interest and. or instament of principa remains o"erdue for t#o har"est
seasons but for a period not e&ceedin' t#o haf years in the case of an ad"ance
'ranted for a'ricutura purpose, and
"$ any amount to be recei"ed remains o"erdue for a period of more than CA days
in respect of other accounts$
:O(t of Order;
An account shoud be treated as Lout of orderL if the outstandin' baance remains
continuousy in e&cess of the sanctioned imit. dra#in' po#er$ %n case #here the
outstandin' baance in the principa operatin' account is ess than the sanctioned
imit. dra#in' po#er, but there are no credits continuousy for si& months as on the
date of baance sheet or credits are not enou'h to co"er the interest debited durin' the
same period, these account shoud be treated as Lout of orderL$
O6erd(e
Any amount due to the ban* under any credit faciity is Lo"erdueL if it is not paid on
the due date fi&ed by the ban*$
CLASSIFICATION OF LOANS
%n %ndia the ban* oans are cassified on the foo#in' basis
2+
Performing Assets/
2oans #here the interest and.or principa are not o"erdue beyond 4EA days at the end
of the financia year is *no#n as performin' assets of ban*$
Non&Performing Assets/
Any oan repayment, #hich is o"erdue beyond 4EA days or t#o ,uarters, is considered
as 3PA$ Accordin' to the securiti)ation and reconstruction of financia assets and
enforcement of security interest ordinance, 5AA5 non:performin' assetM/3PA0
means an asset or account of a borro#er, #hich has been cassified by a ban* or
financia institution as sub:standard, doubtfu or oss asset, in accordance #ith the
directions or 'uideines reatin' to asset cassifications issued by the -eser"e Ban*M
%nternationay, income from non:performin' assets is not reco'ni)ed on accrua basis,
but is ta*en into account as income ony #hen it is actuay recei"ed$ %t has been
decided to adopt simiar practice in our country aso$ Ban*s ha"e been ad"ised that
they shoud not char'e and ta*e to income account the interest on a 3on:performin'
assets$ An asset becomes non:performin' for a ban* #hen it ceases to 'enerate
income$
The basis for treatin' a credit faciity as non:performin' is as foo#sB
ASSET CLASSIFITION/
S$3o$ Cate'ory
of Assets
Basis for decidin' the cate'ory
% Standard
Assets
An asset, #hich does not discose any probem and aso does not
carry more than norma ris* attached to the business, it shoud
not fa under this cate'ory of 3PA$
%% Sub
Standard
Assets
An asset, #hich has been identified as 3PA for a period not
e&ceedin' t#o years$ %n the case of term oan, if instaments of
principa are o"erdue for more than one year but not e&ceedin'
t#o years, it is to be treated as sub:standard asset$ An asset #here
the terms of the oan a'reement re'ardin' interest and principa
ha"e been re:ne'otiated or re:schedued shoud be cassified as
sub:standard and shoud remain in such cate'ory for at east t#o
2,
years of satisfactory performance under the re:ne'otiated or
reschedued terms$
%n other #ords, the cassification of assets shoud not be
up'raded merey as a resut of re:scheduin' uness there is
satisfactory compiance of the abo"e condition$
%%% Doubtfu
Assets
An asset, #hich remains 3PA for more than t#o years$
9ere too, rescheduin' does not entite a ban* to up'rade the
,uaity of an ad"ance automaticay$
%n the case of a term oan, if instaments of principa are o"erdue
for more than t#o years, it is to be treated as doubtfu$
%= 2oss
Assets
An asset #here oss has been identified by the ban* or
interna.e&terna auditors or by -B% inspection but the amount
has not been #ritten:off, #hoy or party$ %n other #ords, such
an asset is considered unreai)abe and of such itte "aue that its
continuance as a ban*abe asset is not #arranted athou'h there
may be some sa"a'e or reco"ery "aue$
(ide*ines for t%e +*assifi+ation of assets
40 Cassification of assets into abo"e cate'ories shoud be done ta*in' into account
the de'ree of #e defined credit #ea*nesses and the e&tent of dependencies on
coatera security for the reai)ation of dues$
5$0 Ban*s shoud estabish appropriate interna systems to eiminate the tendency to
deay or postpone the identification of 3PAKs especiay in respect of hi'h "aue of
accounts$
D$0 Account #ith temporary DeficienciesB
The cassification of an asset as 3PA shoud be based on the record of reco"ery $Ban*
shoud not cassify an ad"ance account as 3PA merey due to the e&istence of some
deficiencies, #hich are temporary in nature as such as non F a"aiabiity of ade,uate
dra#in' po#er based on atest stoc*$
7$0 Asset cassification to be borro#er F #ise and not faciity:#iseB
%t is difficut to en"isa'e a situation #hen ony one faciity to a borro#er becomes a
probem credit and not others$ Therefore, a the faciities 'ranted by a ban* to a
2-
borro#er #i ha"e to be treated as 3PA and not the particuar faciity or a part
thereof, #hich has become irre'uar$
6$0 Ad"ances under consortium arran'ementsB
Asset cassified of accounts under consortium shoud be based on the record of
reco"ery of the indi"idua member ban*s and other aspects ha"in' bearin' on the
reco"erabiity of the ad"ances$
G$0 Accounts #here there is erosion in the "aue of security can be rec*oned as
si'nificant #hen the reai)abe "aue of the security is ess than 6A percent of the
"aue assessed by the ban* or accepted by -B% at the time of ast inspection, as the
case may be$ Such 3PAs may be strai'ht#ay cassified under doubtfu cate'ory and
pro"isionin' shoud be made as appicabe to doubtfu assets$
I$0 A'ricutura Ad"ances
/a$0 %n respect of ad"ances 'ranted for a'ricutura purpose #here interest and . or
instament of principa remains unpaid after it has become past due for t#o har"est
seasons but for a period not e&ceedin' t#o haf years , such an ad"ance shoud be
treated as 3PA$
/b$0 +here the natura caamities impair the repayin' capacity of a'ricutura
borro#ers, ban*s may decide on their o#n as a reief measure:con"ersion of the short
Fterm production oan into a term or reschedue of the repayment period$
/c$0 %n such cases of con"ersation or reschedue, the term oan as #e as fresh short:
term oan may be treated as current dues and need not be cassified as 3PA$
E$0 -estructurin' .-escheduin' of oansB
A standard asset #here the terms of the oan arran'ement re'ardin' interest and
principa ha"e been rene'otiated or reschedued after the commencement of
production shoud be as sub:standard and shoud remain in such cate'ory for at east
one year of satisfactory performance under the rene'otiated or restructured terms$ %n
case of substandard and doubtfu assets aso, rescheduin' does not entite a ban* to
up'rade the ,uaity of ad"ances automaticay uness there is satisfactory performance
under the reschedued Frene'otiated terms$
C$0 E&ceptionsB
As tradin' in"o"es ony buyin' and sein' of commodities and the probems
associated #ith manufacturin' units such as bottenec* in commercia production ,
time and cost escaation etc are not appicabe to them , these 'uideines to traders$
2.
"iffi+(*ties 8it% t%e Non&'erforming Assets
4$0 (#ners do not recei"e a mar*et return on their capita$ %n the #orst case, if the
ban* fais, o#ners ose their assets$ %n modern times, this may affect a broad poo of
sharehoders$
5$0 Depositors do not recei"e a mar*et return on sa"in's$ %n the #orst case if the ban*
fais, depositors ose their assets or uninsured baance$ Ban*s aso redistribute osses
to other borro#ers by char'in' hi'her interest rates$ 2o#er deposit rates and hi'her
endin' rates repress sa"in's and financia mar*ets, #hich hampers economic 'ro#th$
D$0 3on performin' oans represent bad in"estments$ 3PA misaocate credit from
'ood projects, #hich do not recei"e fundin', to faied projects$ Bad in"estments end
up in misaocation of capita and, by e&tension, abour and natura resources$ The
economy performs beo# its production potentia$
7$0 3on performin' oans may spi o"er the ban*in' system and contract the money
stoc*, #hich may ead to economic contraction$
This spio"er effect can be channei)ed throu'h ii,uidity or ban* inso"encyP
/a0 +hen many borro#ers fai to pay interest, ban*s may e&perience i,uidity
shorta'es $These shorta'es can jam payments across the country$
/b0 %i,uidity constraints ban* in payin' depositors e' cashin' their paychec*s$
Ban*in' panic foo#s$ A run on ban* by depositors as part of the nationa money
stoc* become inoperati"e$ The money stoc* contracts and economic contraction
foo#s
/c0 !ndercapitai)ed ban*s e&ceed the ban*s capita base$
3/
CHAPTER-
Causes for 3on Performin' Assets
A stron' ban*in' sector is important for a fourishin' economy$ The faiure of the
ban*in' sector may ha"e an ad"erse impact on other sectors$ The %ndian ban*in'
system, #hich #as operatin' in a cosed economy, no# faces the chaen'es of an
open economy$
(n one hand a protected en"ironment ensured that ban*s ne"er needed to de"eop
sophisticated treasury operations and Asset 2iabiity Mana'ement s*is$
(n the other hand a combination of directed endin' and socia ban*in' ree'ated
profitabiity and competiti"eness to the bac*'round$ The net resut #as unsustainabe
3PAs and conse,uenty a hi'her effecti"e cost of ban*in' ser"ices$
(ne of the main causes of 3PAs into ban*in' sector is the directed oans system
under #hich commercia ban*s are re,uired a prescribed percenta'e of their credit
/7AH0 to priority sectors$ As of today neary I percent of ;ross 3PAs are oc*ed up in
Lhard:coreL doubtfu and oss assets, accumuated o"er the years$
The probem %ndia 1aces is not ac* of strict prudentia norms but
i$ The e'a impediments and time consumin' nature of asset disposa
proposa$
ii$ Postponement of probem in order to sho# hi'her earnin's$
iii$ Manipuation of debtors usin' poitica infuence$
Ma+ro Pers'e+ti6e 5e%ind NPAs
A ot of practica probems ha"e been found in %ndian ban*s, especiay in pubic
sector ban*s$ 1or E&ampe, the 'o"ernment of %ndia had 'i"en a massi"e #a"ier of
-s$ 46,AAA Crs$ under the Prime Minister ship of Mr$ =$P$ Sin'h, for rura debt durin'
4CEC:CA$ This #as not a uni,ue incident in %ndia and eft a ne'ati"e impression on the
payer of the oan$
31
Po"erty ee"ation pro'rams i*e %-DP, --EP, S!ME, SEP!P, <->, PM-> etc$, faied
on "arious 'rounds in meetin' their objecti"es$ The hu'e amounts of oan 'ranted
under these schemes #ere totay unreco"erabe by ban*s due to poitica
manipuation, misuse of funds and non:reiabiity of tar'et audience of these sections$
2oans 'i"en by ban*s are their assets and as the repayments of se"era of the oans
#ere poor, the ,uaities of these assets #ere steadiy deterioratin'$ Credit aocation
became L2on MeasL, oan proposa e"auations #ere sac* and as a resut repayment
#ere "ery poor
T%ere are se6era* genera* reasons for an a++o(nt 5e+oming NPA
Interna* fa+tors/
4$ 1unds borro#ed for a particuar purpose but not use for the said purpose$
5$ Project not competed in time$
D$ Poor reco"ery of recei"abes$
7$ E&cess capacities created on non:economic costs$
6$ %n:abiity of the corporate to raise capita throu'h the issue of e,uity or other debt
instrument from capita mar*ets$
G$ Business faiures$
I$ Di"ersion of funds for e&pansionQmoderni)ationQsettin' up ne# projectsQ hepin' or
promotin' sister concerns$
E$ +ifu defauts, siphonin' of funds, fraud, disputes, mana'ement disputes, mis:
appropriation etc$
C$ Deficiencies on the part of the ban*s "i)$ in credit appraisa, monitorin' and
foo#:ups, deay in settement of paymentsQ subsidiaries by 'o"ernment bodies etc$
E<terna* fa+tors/
4$ Su''ish e'a system :
32
2on' e'a tan'es
Chan'es that had ta*en pace in abour a#s
2ac* of sincere effort$
5$ Scarcity of ra# materia, po#er and other resources$
D$ %ndustria recession$
7$ Shorta'e of ra# materia, ra# materiaQinput price escaation, po#er shorta'e,
industria recession, e&cess capacity, natura caamities i*e foods, accidents$
6$ 1aiures, non paymentQ o"er dues in other countries, recession in other countries,
e&ternai)ation probems, ad"erse e&chan'e rates etc$
G$ ;o"ernment poicies i*e e&cise duty chan'es, %mport duty chan'es etc$
R (ther Causes
a0 1aiure to brin' in -e,uired capita
b0 Too ambitious project
c0 !n#anted E&penses
e0 ("er tradin'
f0 %mbaances of in"entories
'0 2ac* of proper pannin'
h0 Dependence on sin'e customers
i0 2ac* of e&pertise
j0 %mproper #or*in' Capita M'mt$
*0 Mis mana'ement
0 Di"ersion of 1unds
m0 Poor @uaity Mana'ement
n0 9ea"y borro#in's
o0 Poor Credit Coection
p0 2ac* of @uaity Contro
,0 +ron' seection of borro#er
r0 Poor Credit appraisa
s0 !nhepfu in super"ision
t0 Tou'h stand on issues
u0 Too infe&ibe attitude
"0 Systems o"eroaded
#0 3on inspection of !nits
&0 2ac* of moti"ation
33
y0 Deay in sanction
)0 2ac* of trained staff
aa0 2ac* of dee'ation of #or*
ab0 Sudden credit s,uee)e by ban*s
ac0 2ac* of commitment to reco"ery
ad0 2ac* of technica, personne 8 )ea to
ae0 2ac* of %nfrastructure
af0 1ast chan'in' technoo'y
a'0 !nhepfu attitude of ;o"ernment
ah0 Chan'es in consumer preferences
ai0 %ncrease in materia cost
aj0 ;o"ernment poicies
a*0 Credit poicies
a0 Ta&ation a#s
am0 Ci"i commotion
an0 Poitica hostiity
ao0 Su''ish e'a system
ap0 Chan'es reated to Ban*in' amendment Act
a,0 Poor Credit discipine
ar0 %nade,uate Credit 8 -is* Mana'ement
as0 Di"ersion of funds by promoters
at0 1undin' of non:"iabe projects
au0 %n the eary 4CCAs PSBs started sufferin' from acute capita inade,uacy and
o#er. ne'ati"e profitabiity$ The parameters set for their functionin' did not
project the paramount need for these corporate 'oas$
a"0 The ban*s had itte freedom to price products, cater products to chosen
se'ments or in"est funds in their best interest
a#0 Since 4CIAs, the SCBs functioned as units cut off from internationa ban*in'
and unabe to participate in the structura transformations and ne# types of
endin' products$
a&0 Audit and contro functions #ere not independent and thus unabe to correct
the effect of serious fa#s in poicies and directions
34
ay0 Ban*s #ere not sufficienty de"eoped in terms of s*is and e&pertise to
re'uate the humon'ous 'ro#th in credit and mana'e the di"erse ris*s that
emer'ed in the process
a)0 %nade,uate mechanism to 'ather and pubici)e credit information amon'st
commercia ban*s
ba0 Effecti"e reco"ery from defautin' and o"erdue borro#ers #as hampered on
account of si)eabe o"erhan' component arisin' from infirmities in the
e&istin' process of debt reco"ery, inade,uate e'a pro"isions on forecosure
and ban*ruptcy and difficuties in the e&ecution of court decrees$
As mentioned earier, #e hed discussions #ith enders and financia sector e&perts on
the causes of 3PAs in %ndia and #hist the abo"e:mentioned causes #ere reaffirmed,
some others #ere aso mentioned$ A brief discussion is pro"ided beo#$
Li5era*i=ation of e+onom7>remo6a* of restri+tions>red(+tion of tariffs
A ar'e number of 3PA borro#ers #ere unabe to compete in a competiti"e mar*et in
#hich o#er prices and 'reater choices #ere a"aiabe to consumers$ 1urther,
borro#ers operatin' in specific industries ha"e suffered due to poitica, fisca and
socia compusions, compoundin' pressures from iberai)ation /e$'$, su'ar and
fertii)er industries0
Ta< monitoring of +redits and fai*(re to re+ogni=e Ear*7 ?arning Signa*s
%t has been stated that appro"a of oan proposas is 'eneray thorou'h and each
proposa passes throu'h many e"es before appro"a is 'ranted$ 9o#e"er, the
monitorin' of sometimes:compe& credit fies has not recei"ed the attention it needed,
#hich meant that eary #arnin' si'nas #ere not reco'ni)ed and standard assets
sipped to 3PA cate'ory #ithout ban*s bein' abe to ta*e proacti"e measures to
pre"ent this$ Party due to this reason, ad"erse trends in borro#ersL performance #ere
not noted and the position further deteriorated before action #as ta*en$
O6er o'timisti+ 'romoters
Promoters #ere often optimistic in settin' up ar'e projects and in some cases #ere
not fuy abo"e board in their intentions$ Screenin' procedures did not a#ays
hi'hi'ht these issues$ (ften projects #ere set up #ith the e&pectation that part of the
fundin' #oud be arran'ed from the capita mar*ets, #hich #ere boomin' at the time
of the project appraisa$ +hen the capita mar*ets subse,uenty crashed, the re,uisite
funds coud ne"er be raised, promoters often ost interest and enders #ere eft
stranded #ith incompete.un"iabe projects$
35
"ire+ted *ending
2oans to some se'ments #ere dictated by ;o"ernmentLs poicies rather than
commercia imperati"es$
Hig%*7 *e6eraged 5orro8ers
Some borro#ers #ere undercapitai)ed and o"er burdened #ith debt to absorb the
chan'in' economic situation in the country$ (peratin' #ithin a protected mar*et
resuted in o# appreciation of commercia.mar*et ris*$
F(nding mismat+%
There are said to be many cases #here oans 'ranted for short terms #ere used to fund
on' term transactions$
Hig% Cost of F(nds
%nterest rates as hi'h as 5AH #ere not uncommon$ Couped #ith hi'h e"era'in' and
fain' demand, borro#ers coud not continue to ser"ice hi'h cost debt$
?i**f(* "efa(*ters
There are a number of borrowers who have strategically defaulted
on their debt service obligations realiing that the legal recourse
available to creditors is slow in achieving results!
3+
CHAPTER-I
PROCE"9RES FOR NPA I"ENTIFICATION AN" RESOL9TION IN IN"IA
0$ Interna* C%e+ks and Contro*
Since hi'h e"e of 3PAs dampens the performance of the ban*s identification of
potentia probem accounts and their cose monitorin' assumes importance$
Thou'h most ban*s ha"e Eary +arnin' Systems /E+S0 for identification of
potentia 3PAs, the actua processes foo#ed, ho#e"er, differ from ban* to ban*$
The E+S enabe a ban* to identify the borro#er accounts #hich sho# si'ns of
credit deterioration and initiate remedia action$ Many ban*s ha"e e"o"ed and
adopted an eaborate E+S, #hich ao#s them to identify potentia distress si'nas
and pan their options beforehand, accordin'y$ The eary #arnin' si'nas,
indicati"e of potentia probems in the accounts, "i)$ persistent irre'uarity in
accounts, deays in ser"icin' of interest, fre,uent de"o"ement of 2.Cs, unitsL
financia probems, mar*et reated probems, etc$ are captured by the system$ %n
addition, some of these ban*s are re"ie#in' their e&posure to borro#er accounts
e"ery ,uarter based on pubished data #hich aso ser"es as an important additiona
#arnin' system$ These eary #arnin' si'nas used by ban*s are 'eneray
independent of ris* ratin' systems and asset cassification norms prescribed by
-B%$
The major components.processes of a E+S foo#ed by ban*s in %ndia as brou'ht
out by a study conducted by -eser"e Ban* of %ndia at the instance of the Board of
1inancia Super"ision are as foo#sB
Desi'natin' -eationship Mana'er. Credit (fficer for monitorin' account.s
Preparation of S*no# your cientL profie
Credit ratin' system
%dentification of #atch:ist.specia mention cate'ory accounts
Monitorin' of eary #arnin' si'nas
Re*ations%i' Manager>Credit Offi+er
The -eationship Mana'er.Credit (fficer is an officia #ho is e&pected to ha"e
compete *no#ed'e of borro#er, his business, his future pans, etc$ The
-eationship Mana'er has to *eep in constant touch #ith the borro#er and report
a de"eopments impactin' the borro#abe account$ As a part of this contact he is
aso e&pected to conduct scrutiny and acti"ity inspections$ %n the credit monitorin'
process, the responsibiity of monitorin' a corporate account is "ested #ith
-eationship Mana'er.Credit (fficer$
!no8 7o(r +*ient@ 'rofi*e -!AC.
3,
Most ban*s in %ndia ha"e a system of preparin' S*no# your cientL /K>C0
profie.credit report$ As a part of SK>CL system, "isits are made on cients and their
paces of business.units$ The fre,uency of such "isits depends on the nature and
needs of reationship$
Credit Rating S7stem
The credit ratin' system is essentiay one point indicator of an indi"idua credit
e&posure and is used to identify measure and monitor the credit ris* of indi"idua
proposa$ At the #hoe ban* e"e, credit ratin' system enabes trac*in' the heath
of ban*s entire credit portfoio$ Most ban*s in %ndia ha"e put in pace the system of
interna credit ratin'$ +hie most of the ban*s ha"e de"eoped their o#n modes, a
fe# ban*s ha"e adopted credit ratin' modes desi'ned by ratin' a'encies$ Credit
ratin' modes ta*e into account "arious types of ris*s "i)$ financia, industry and
mana'ement, etc$ associated #ith a borro#abe unit$ The e&ercise is 'eneray done
at the time of sanction of ne# borro#abe account and at the time of re"ie# .
rene#a of e&istin' credit faciities$
?at+%&*ist>S'e+ia* Mention Categor7
The 'radin' of the ban*Ls ris* assets is an important interna contro too$ %t ser"es
the need of the Mana'ement to identify and monitor potentia ris*s of a oan asset$
The purpose of identification of potentia 3PAs is to ensure that appropriate
pre"enti"e . correcti"e steps coud be initiated by the ban* to protect a'ainst the
oan asset becomin' non:performin'$ Most of the ban*s ha"e a system to put
certain borro#abe accounts under #atch ist or specia mention cate'ory if
performin' ad"ances operatin' under ad"erse business or economic conditions are
e&hibitin' certain distress si'nas$ These accounts 'eneray e&hibit #ea*nesses
#hich are correctabe but #arrant ban*sL coser attention$ The cate'ori)ation of
such accounts in #atch ist or specia mention cate'ory pro"ides eary #arnin'
si'nas enabin' -eationship Mana'er or Credit (fficer to anticipate credit
deterioration and ta*e necessary pre"enti"e steps to a"oid their sippa'e into non
performin' ad"ances$
Ear*7 ?arning Signa*s
%t is important in any eary #arnin' system, to be sensiti"e to si'nas of credit
deterioration$ A host of eary #arnin' si'nas are used by different ban*s for
identification of potentia 3PAs$ Most ban*s in %ndia ha"e aid do#n a series of
operationa, financia, transactiona indicators that coud ser"e to identify emer'in'
probems in credit e&posures at an eary sta'e$ 1urther, it is re"eaed that the
3-
indicators #hich may tri''er eary #arnin' system depend not ony on defaut in
payment of instament and interest but aso other factors such as deterioration in
operatin' and financia performance of the borro#er, #ea*enin' industry
characteristics, re'uatory chan'es, 'enera economic conditions, etc$ Eary
#arnin' si'nas can be cassified into fi"e broad cate'ories "i)$
/a0 1inancia
/b0 (perationa
/c0 Ban*in'
/d0 Mana'ement and
/e0 E&terna factors$
Finan+ia* re*ated #arnin' si'nas 'eneray emanate from the borro#ersL baance
sheet, income e&penditure statement, statement of cash fo#s, statement of
recei"abes etc$ 1oo#in' common #arnin' si'nas are captured by some of the
ban*s ha"in' reati"ey de"eoped E+S$
Finan+ia* 8arning signa*s
Persistent irre'uarity in the account
Defaut in repayment obi'ation
De"o"ement of 2C.in"ocation of 'uarantees
Deterioration in i,uidity.#or*in' capita position
Substantia increase in on' term debts in reation to e,uity
Decinin' saes
(peratin' osses.net osses
-isin' saes and fain' profits
Disproportionate increase in o"erheads reati"e to saes
-isin' e"e of bad debt osses (perationa #arnin' si'nas
2o# acti"ity e"e in pant
Disordery di"ersification.fre,uent chan'es in pan
3onpayment of #a'es.po#er bis
2oss of critica customer.s
1re,uent abor probems
E"idence of a'ed in"entory.ar'e e"e of in"entory
Management re*ated 8arning signa*s
2ac* of co:operation from *ey personne
Chan'e in mana'ement, o#nership, or *ey personne
Desire to ta*e undue ris*s
1amiy disputes
Poor financia contros
1ud'in' of financia statements
Di"ersion of funds
Banking re*ated signa*s
Decinin' ban* baances.decinin' operations in the account
(penin' of account #ith other ban*
-eturn of out#ard bis.dishonored che,ues
Saes transactions not routed throu'h the account
3.
1re,uent re,uests for oan
1re,uent deays in submittin' stoc* statements, financia data, etc$
Si'nas reatin' to e&terna factors
Economic recession
Emer'ence of ne# competition
Emer'ence of ne# technoo'y
Chan'es in 'o"ernment . re'uatory poicies
3atura caamities
1$ Management>Reso*(tion of NPAs
A reduction in the tota 'ross and net 3PAs in the %ndian financia system indicates
a si'nificant impro"ement in mana'ement of 3PAs$ This is aso on account of
"arious resoution mechanisms introduced in the recent past #hich incude the
S-1AES% Act, one time settement schemes, settin' up of the CD- mechanism,
stren'thenin' of D-Ts$ 1rom the data a"aiabe of Pubic Sector Ban*s as on
March D4, 5AAD, there #ere 4,655 numbers of 3PAs as on March D4, 5AAD #hich
had 'ross "aue 'reater than -s$ 6A miion in a the pubic sector ban*s in %ndia$
The tota 'ross "aue of these 3PAs amounted to -s$ 546 biion$ The tota number
of resoution approaches /incudin' cases #here action is to be initiated0 is 'reater
than the number of 3PAs, indicatin' some doube countin'$ As can be seen, suit
fied and B%1- are the t#o most common approaches to resoution of 3PAs in
pubic sector ban*s$ -ehabiitation has been considered. adopted in ony about
4DH of the cases$ Settement has been considered ony in CH of the cases$ %t is
i*ey to ha"e been adopted in e"en fe#er cases$ Data a"aiabe on resoution
strate'ies adopted by pubic sector ban*s su''est that Compromise settement
schemes #ith borro#ers are found to be more effecti"e than e'a measures$ Many
ban*s ha"e come out #ith their o#n restructurin' schemes for settement of 3PA
accounts$ State Ban* of %ndia, 9D1C 2imited, M.s$ Dun and Bradstreet
%nformation Ser"ices /%ndia0 P"t$ 2td$ and M.s$ Trans !nion to ser"e as a
mechanism for e&chan'e of information bet#een ban*s and 1%s for curbin' the
'ro#th of 3PAs incorporated credit %nformation Bureau /%ndia0 2imited /C%B%20 in
<anuary 5AA4$ Pendin' the enactment of C%B -e'uation Bi, the -B% constituted a
#or*in' 'roup to e&amine the roe of C%Bs$ As per the recommendations of the
#or*in' 'roup, Ban*s and 1%s are no# re,uired to submit the ist of suit:fied cases
4/
of -s$ 4A miion and abo"e and suit fied cases of #ifu defauters of -s$ 5$6
miion and abo"e to -B% as #e as C%B%2$ C%B%2 #i share this information #ith
commercia ban*s and 1%s so as to hep them minimi)e ad"erse seection at
appraisa sta'e$ The C%B%2 is in the process of 'ettin' operationaised$

B$ ?i**f(* "efa(*ters
-B% has issued re"ised 'uideines in respect of detection of #ifu defaut and
di"ersion and siphonin' of funds$ As per these 'uideines a #ifu defaut occurs
#hen a borro#er defauts in meetin' its obi'ations to the ender #hen it has
capacity to honor the obi'ations or #hen funds ha"e been utii)ed for purposes
other than those for #hich finance #as 'ranted$ The ist of #ifu defauters is
re,uired to be submitted to SEB% and -B% to pre"ent their access to capita
mar*ets$ Sharin' of information of this nature heps ban*s in their due dii'ence
e&ercise and heps in a"oidin' financin' unscrupuous eements$ -B% has ad"ised
enders to initiate e'a measures incudin' crimina actions, #here"er re,uired,
and underta*e a proacti"e approach in chan'e in mana'ement, #here appropriate$
3$ Lega* and Reg(*ator7 Regime
A$ "e5t Re+o6er7 Tri5(na*s
D-Ts #ere set up under the -eco"ery of Debts due to Ban*s and 1inancia
%nstitutions Act, 4CCD$ !nder the Act, t#o types of Tribunas #ere set up i$e$ Debt
-eco"ery Tribuna /D-T0 and Debt -eco"ery Appeate Tribuna /D-AT0$ The
D-Ts are "ested #ith competence to entertain cases referred to them, by the ban*s
and 1%s for reco"ery of debts due to the same$ The order passed by a D-T is
appeaabe to the Appeate Tribuna but no appea sha be entertained by the
D-AT uness the appicant deposits I6H of the amount due from him as
determined by it$ 9o#e"er, the Affiiate Tribuna may, for reasons to be recei"ed in
#ritin', #ai"e or reduce the amount of such deposit$ Ad"ances of -s$ 4 miion and
abo"e can be setted throu'h D-T process$ An important po#er conferred on the
Tribuna is that of ma*in' an interim order /#hether by #ay of injunction or stay0
a'ainst the defendant to debar him from transferrin', aienatin' or other#ise
deain' #ith or disposin' of any property and the assets beon'in' to him #ithin
prior permission of the Tribuna$ This order can be passed e"en #hie the caim is
pendin'$ D-Ts are critici)ed in respect of reco"ery made considerin' the si)e of
41
3PAs in the Country$ %n 'enera, it is obser"ed that the defendants approach the
9i'h Country chaen'in' the "erdict of the Appeate Tribuna #hich eads to
further deays in reco"ery$ =aidity of the Act is often chaen'ed in the court #hich
hinders the pro'ress of the D-Ts$ 2asty, many needs to be done for ma*in' the
D-Ts stron'er in terms of infrastructure$
B$ Lokada*ats
The institution of 2o*adaat constituted under the 2e'a Ser"ices Authorities Act,
4CEI heps in reso"in' disputes bet#een the parties by conciiation, mediation,
compromise or amicabe settement$ %t is *no#n for effectin' mediation and
counsein' bet#een the parties and to reduce burden on the court, especiay for
sma oans$ Cases in"o"in' suit caims up to -s$ miion can be brou'ht before
the 2o*adaat and e"ery a#ard of the 2o*adaat sha be deemed to be a decree of a
Ci"i Court and no appea can ie to any court a'ainst the a#ard made by the
2o*adaat$ Se"era peope of particuar ocaities. "arious socia or'ani)ations are
approachin' 2o*adaats #hich are 'eneray presided o"er by t#o or three senior
persons incudin' retired senior ci"i ser"ants, defense personne and judicia
officers$ They ta*e up cases #hich are suitabe for settement of debt for certain
consideration$ Parties are heard and they e&pain their e'a position$ They are
ad"ised to reach to some settement due to socia pressure of senior bureaucrats or
judicia officers or socia #or*ers$ %f the compromise is arri"ed at, the parties to the
iti'ation si'n a statement in presence of 2o*adaats #hich is e&pected to be fied
in court to obtain a consent decree$ 3ormay, if such settement contains a cause
that if the compromise is not adhered to by the parties, the suits pendin' in the
court #i proceed in accordance #ith the a# and parties #i ha"e a ri'ht to 'et
the decree from the court$ %n 'enera, it is obser"ed that ban*s do not 'et the fu
ad"anta'e of the 2o*adaats$ %t is difficut to coect the concerned borro#ers
#iin' to 'o in for compromise on the day #hen the 2o*adaat meets$ %n any case,
#e shoud continue our efforts to see* the hep of the 2o*adaat$
C$ Ena+tment of SRFAESI A+t
The NThe Securiti)ation and -econstruction of 1inancia Assets and Enforcement
of Security %nterest ActN /S-1AES%0 pro"ides the forma e'a basis and re'uatory
frame#or* for settin' up Asset -econstruction Companies /A-Cs0 in %ndia$ %n
addition to asset reconstruction and A-Cs, the Act deas #ith the foo#in' ar'ey
aspects,
42
Securiti)ation and Securiti)ation Companies
Enforcement of Security %nterest
Creation of a centra re'istry in #hich a securiti)ation and asset
reconstruction transactions as #e as any creation of security interests has
to be fied$
The -eser"e Ban* of %ndia /-B%0, the desi'nated re'uatory authority for A-CS
has issued Directions, ;uidance 3otes, Appication 1orm and ;uideines to Ban*s
in Apri 5AAD for re'uatin' functionin' of the proposed A-CS and these
Directions. ;uidance 3otes co"er "arious aspects reatin' to re'istration,
operations and fundin' of A-CS and resoution of 3PAs by A-CS$ The -B% has
aso issued 'uideines to ban*s and financia institutions on issues reatin' to
transfer of assets to A-CS, consideration for the same and "auation of instruments
issued by the A-CS$ Additionay, the Centra ;o"ernment has issued the security
enforcement rues /NEnforcement -uesN0, #hich ays do#n the procedure to be
foo#ed by a secured creditor #hie enforcin' its security interest pursuant to the
Act$ The Act permits the secured creditors /if I6H of the secured creditors a'ree0
to enforce their security interest in reation to the underyin' security #ithout
reference to the Court after 'i"in' a GA day notice to the defautin' borro#er upon
cassification of the correspondin' financia assistance as a non:performin' asset$
The Act permits the secured creditors to ta*e any of the foo#in' measuresB
Ta*e o"er possession of the secured assets of the borro#er incudin'
ri'ht to transfer by #ay of ease, assi'nment or saeP
Ta*e o"er the mana'ement of the secured assets incudin' the ri'ht
to transfer by #ay of ease, assi'nment or saeP
Appoint any person as a mana'er of the secured asset /such person
coud be the A-C if they do not accept any pecuniary iabiity0P and
-eco"er recei"abes of the borro#er in respect of any secured asset
#hich has been transferred$
After ta*in' o"er possession of the secured assets, the secured creditors are
re,uired to obtain "auation of the assets$ These secured assets may be sod by
usin' any of the foo#in' routes to obtain ma&imum "aue$
By obtainin' ,uotations from persons deain' in such assets or
other#ise interested in buyin' the assetsP
By in"itin' tenders from the pubicP
By hodin' pubic auctionsP or
By pri"ate treaty$
43
2enders ha"e sei)ed coatera in some cases and #hie it has not yet been possibe
to reco"er "aue from most such sei)ures due to certain e'a hurdes, enders are
no# ceary in a much better bar'ainin' position "is:a:"is defautin' borro#ers
than they #ere before the enactment of S-1AES% Act$ +hen the e'a hurdes are
remo"ed, the bar'ainin' po#er of enders is i*ey to impro"e further and one
#oud e&pect to see a ar'e number of 3PAs bein' reso"ed in ,uic* time, either
throu'h security enforcement or throu'h settements$
!nder the S-1AES% Act A-CS can be set up under the Companies Act, 4C6G$ The
Act desi'nates any person hodin' not ess than 4AH of the paid:up e,uity capita
of the A-C as a sponsor and prohibits any sponsor from hodin' a controin'
interest in, bein' the hodin' company of or bein' in contro of the A-C$ The
S-1AES% and S-1AES% -ues. ;uideines re,uire A-CS to ha"e a minimum net:
o#ned fund of not ess than -s$ 5A,AAA,AAA$ 1urther, the Directions re,uire that an
A-C shoud maintain, on an on'oin' basis, a minimum capita ade,uacy ratio of
46H of its ris* #ei'hted assets$ A-CS ha"e been 'ranted a ma&imum reai)ation
time frame of fi"e years from the date of ac,uisition of the assets$
The Act stipuates se"era measures that can be underta*en by A-Cs for asset
reconstruction$ These incudeB
Enforcement of security interestP
Ta*in' o"er or chan'in' the mana'ement of the business of the
borro#erP
The sae or ease of the business of the borro#erP
Settement of the borro#ersL duesP and
-estructurin' or rescheduin' of debt$
A-CS are aso permitted to act as a mana'er of coatera assets ta*en o"er by the
enders under security enforcement ri'hts a"aiabe to them or as a reco"ery a'ent
for any ban* or financia institution and to recei"e a fee for the dischar'e of these
functions$ They can aso be appointed to act as a recei"er, if appointed by any
Court or D-T$
"$ Instit(tion of C"R Me+%anism
The -B% has instituted the Corporate Debt -estructurin' /CD-0 mechanism for
resoution of 3PAs of "iabe entities facin' financia difficuties$ The CD-
mechanism instituted in %ndia is broady aon' the ines of simiar systems in the
!K, Thaiand, Korea and Maaysia$ The objecti"e of the CD- mechanism has been
to ensure timey and transparent restructurin' of corporate debt outside the pur"ie#
of the Board for %ndustria and 1inancia -econstruction /B%1-0, D-Ts or other
44
e'a proceedin's$ The frame#or* is intended to preser"e "iabe corporate affected
by certain interna.e&terna factors and minimi)e osses to creditors.other
sta*ehoders throu'h an ordery and coordinated restructurin' pro'ramme$ -B%
has issued re"ised 'uideines in 1ebruary 5AAD #ith respect to the CD-
mechanism$ Corporate borro#ers #ith borro#in's from the ban*in' system of -s$
5Acrores and abo"e under mutipe ban*in' arran'ement are ei'ibe under the
CD- mechanism$ Accounts fain' under standard, sub:standard or doubtfu
cate'ories can be considered for restructurin'$ CD- is a non:statutory mechanism
based on debtor:creditor a'reement and inter:creditor a'reement$ -estructurin'
heps in ai'nin' repayment obi'ations for ban*ers #ith the cash fo# projections
as reassessed at the time of restructurin'$ Therefore it is critica to prepare a
restructurin' pan on the ines of the e&pected business pan aon' #ith projected
cash fo#s$
The CD- process is bein' stabii)ed$ Certain re"isions are en"isa'ed #ith respect
to the ei'ibiity criteria /amount of borro#in's0 and time frame for restructurin'$
1orei'n ban*s are not members of the CD- forum, and it is e&pected that they
#oud be si'nin' the a'reements shorty$ 9o#e"er they attend meetin's$ The first
A-C to be operationa in %ndia: Asset -econstruction Company of %ndia /A-;%20
is a member of the CD- forum$ 2enders in %ndia prefer to resort to CD-
mechanism to a"oid unnecessary deays in mutipe ender arran'ements and to
increase transparency in the process$ +hie in the -B% 'uideines it has been
recommended to in"o"e independent consutants, ban*s are so far resortin' to
their interna teams for recommendin' restructurin' pro'rams$
E$ Com'romise Sett*ement S+%emes
(ne Time Settement Schemes
3PAs in a sectors, #hich ha"e become doubtfu or oss as on D4st March 5AAA$
The scheme aso co"ers 3PAs cassified as sub:standard as on D4st March 5AAA,
#hich ha"e subse,uenty become doubtfu or oss$ A cases on #hich the ban*s
ha"e initiated action under the S-1AES% Act and aso cases pendin' before
Courts.D-Ts.B%1-, subject to consent decree bein' obtained from the
Courts.D-Ts.B%1- are co"ered$ 9o#e"er cases of #ifu defaut, fraud and
mafeasance are not co"ered$ As per the (TS scheme, for 3PAs up to -s$
4Acrores, the minimum amount that shoud be reco"ered shoud be 4AAH of the
outstandin' baance in the account$
3e'otiated Settement Schemes
45
The -B%.;o"ernment has been encoura'in' ban*s to desi'n and impement
poicies for ne'otiated settements, particuary for od and unreso"ed 3PAs$ The
broad frame#or* for such settements #as put in pace in <uy 4CC6$ Specific
'uideines #ere issued in May 4CCC to pubic sector ban*s for one:time settements
of 3PAs of sma scae sector$ This scheme #as "aid unti September 5AAA and
enabed ban*s to reco"er -s G$I biion from "arious accounts$ -e"ised 'uideines
#ere issued in <uy 5AAA for reco"ery of 3PAs of -s$ 6A miion and ess$ These
'uideines #ere effecti"e unti <une 5AA4 and heped ban*s reco"er -s$ 5G biion$
F$ In+reased Po8ers to NCLTs and t%e Pro'osed Re'ea* of BIFR
%n %ndia, companies #hose net #orth has been #iped out on account of accumuated
osses come under the pur"ie# of the Sic* %ndustria Companies Act /S%CA0 and need
to be referred to B%1-$ (nce a company is referred to the B%1- /and e"en if an
en,uiry is pendin' as to #hether it shoud be admitted to B%1-0, it is afforded
protection a'ainst reco"ery proceedin's from its creditors$ B%1- is #idey re'arded as
a stumbin' boc* in reco"erin' "aue for 3PAs$ Promoters systematicay ta*e refu'e
in S%CA : often there is a scrambe to fie a reference in B%1- so as to obtain
protection from debt reco"ery proceedin's$ The recent amendments to the Companies
Act "est po#ers for re"i"a and rehabiitation of companies #ith the 3ationa
Company 2a# Tribuna /3C2T0, in pace of B%1-, #ith modifications to address
#ea*nesses e&perienced under the S%CA pro"isions$ The 3C2T #oud prepare a
scheme for reconstruction of any sic* company and there is no bar on the endin'
institution of e'a proceedin's a'ainst such company #hist the scheme is bein'
prepared by the 3C2T$ Therefore, proceedin's initiated by any creditor see*in' to
reco"er monies from a sic* company #oud not be suspended by a reference to the
3C2T and, therefore, the abo"e pro"ision of the Act may not ha"e much ree"ance
any on'er and probaby does not e&tend to the tribuna for this reason$ 9o#e"er,
there is a possibiity of confict bet#een the acti"ities that may be underta*en by the
A-C, e$'$ chan'e in mana'ement, and the roe of the 3C2T in restructurin' sic*
companies$ The Bi to repea S%CA is currenty pendin' in Pariament and the
process of staffin' of 3C2Ts has been initiated$
4+
CHAPTER-II
-eser"e Ban* ;uideines on purchase. sae of 3on Performin' 1inancia Assets
Scope
4$These 'uideines #oud be appicabe to ban*s, 1%s and 3B1Cs purchasin'. sein'
non performin' financia assets, from. to other ban*s.1%s.3B1Cs /e&cudin'
securitisation companies. reconstruction companies0$
5$ A financia asset, incudin' assets under mutipe.consortium ban*in'
arran'ements, #oud be ei'ibe for purchase.sae in terms of these 'uideines if it is a
non:performin' asset.non performin' in"estment in the boo*s of the sein' ban*$
D$ The reference to Lban*L in the 'uideines #oud incude financia institutions and
3B1Cs$
Structure
7$The 'uideines to be foo#ed by ban*s purchasin'. sein' non:performin'
financia assets from . to other ban*s are 'i"en beo#$ The 'uideines ha"e been
'rouped under the foo#in' headin'sB
i$ Procedure for purchase. sae of non performin' financia assets by ban*s, incudin'
"auation and pricin' aspects$
ii$ Prudentia norms, in the foo#in' areas, for ban*s for purchase. sae of non
performin' financia assetsB
a$ Asset cassification norms
b$ Pro"isionin' norms
c$ Accountin' of reco"eries
d$ Capita ade,uacy norms
e$ E&posure norms
iii$ Discosure re,uirements
6$Procedure for purchase. sae of non performin' financia assets, incudin' "auation
and pricin' aspects
i0A ban* #hich is purchasin'. sein' non:performin' financia assets shoud ensure
that the purchase. sae is conducted in accordance #ith a poicy appro"ed by the
Board$ The Board sha ay do#n poicies and 'uideines co"erin', inter aias,
a$ 3on performin' financia assets that may be purchased. sodP
b$ 3orms and procedure for purchase. sae of such financia assetsP
4,
c$ =auation procedure to be foo#ed to ensure that the economic "aue of financia
assets is reasonaby estimated based on the estimated cash fo#s arisin' out of
repayments and reco"ery prospectsP
d$ Dee'ation of po#ers of "arious functionaries for ta*in' decision on the purchase.
sae of the financia assetsP etc$
e$ Accountin' poicy
ii0 +hie ayin' do#n the poicy, the Board sha satisfy itsef that the ban* has
ade,uate s*is to purchase non performin' financia assets and dea #ith them in an
efficient manner #hich #i resut in "aue addition to the ban*$ The Board shoud
aso ensure that appropriate systems and procedures are in pace to effecti"ey address
the ris*s that a purchasin' ban* #oud assume #hie en'a'in' in this acti"ity$
iii0 The estimated cash fo#s are normay e&pected to be reaised #ithin a period of
three years and not ess than 6H of the estimated cash fo#s shoud be reai)ed in
each haf year$
i"0A ban* may purchase.se non:performin' financia assets from.to other ban*s ony
on L#ithout recourseL basis, i$e$, the entire credit ris* associated #ith the non:
performin' financia assets shoud be transferred to the purchasin' ban*$ Sein' ban*
sha ensure that the effect of the sae of the financia assets shoud be such that the
asset is ta*en off the boo*s of the ban* and after the sae there shoud not be any
*no#n iabiity de"o"in' on the sein' ban*$
"0 Ban*s shoud ensure that subse,uent to sae of the non performin' financia assets
to other ban*s, they do not ha"e any in"o"ement #ith reference to assets sod and do
not assume operationa, e'a or any other type of ris*s reatin' to the financia assets
sod$ Conse,uenty, the specific financia asset shoud not enjoy the support of credit
enhancements . i,uidity faciities in any form or manner$
"i0Each ban* #i ma*e its o#n assessment of the "aue offered by the purchasin'
ban* for the financia asset and decide #hether to accept or reject the offer$
"ii0 !nder no circumstances can a sae to other ban*s be made at a contin'ent price
#hereby in the e"ent of shortfa in the reai)ation by the purchasin' ban*s, the sein'
ban*s #oud ha"e to bear a part of the shortfa$
"iii0 A non:performin' asset in the boo*s of a ban* sha be ei'ibe for sae to other
4-
ban*s ony if it has remained a non:performin' asset for at east t#o years in the
boo*s of the sein' ban*$
i&0 Ban*s sha se non:performin' financia assets to other ban*s ony on cash basis$
The entire sae consideration shoud be recei"ed upfront and the asset can be ta*en out
of the boo*s of the sein' ban* ony on receipt of the entire sae consideration$
&0 A non:performin' financia asset shoud be hed by the purchasin' ban* in its
boo*s at east for a period of 46 months before it is sod to other ban*s$ Ban*s shoud
not se such assets bac* to the ban*, #hich had sod the 3P1A$
/&i0 Ban*s are aso permitted to se.buy homo'eneous poo #ithin retai non:
performin' financia assetsP on a portfoio basis pro"ided each of the non:performin'
financia assets of the poo has remained as non:performin' financia asset for at east
5 years in the boo*s of the sein' ban*$ The poo of assets #oud be treated as a
sin'e asset in the boo*s of the purchasin' ban*$
&ii0 The sein' ban* sha pursue the staff accountabiity aspects as per the e&istin'
instructions in respect of the non:performin' assets sod to other ban*s$
G$ Prudentia norms for ban*s for the purchase. sae transactions
/A0 Asset cassification norms
/i0$ The non:performin' financia asset purchased, may be cassified as LstandardL in
the boo*s of the purchasin' ban* for a period of CA days from the date of purchase$
Thereafter, the asset cassification status of the financia asset purchased, sha be
determined by the record of reco"ery in the boo*s of the purchasin' ban* #ith
reference to cash fo#s estimated #hie purchasin' the asset #hich shoud be in
compiance #ith re,uirements in Para 6 /iii0$
/ii0$ The asset cassification status of an e&istin' e&posure /other than purchased
financia asset0 to the same obi'or in the boo*s of the purchasin' ban* #i continue
to be 'o"erned by the record of reco"ery of that e&posure and hence may be different$
/iii0 +here the purchase.sae does not satisfy any of the prudentia re,uirements
prescribed in these 'uideines the asset cassification status of the financia asset in the
boo*s of the purchasin' ban* at the time of purchase sha be the same as in the boo*s
of the sein' ban*$ Thereafter, the asset cassification status #i continue to be
determined #ith reference to the date of 3PA in the sein' ban*$
4.
/i"0 Any restructure.reschedue.rephrase of the repayment schedue or the estimated
cash fo# of the non:performin' financia asset by the purchasin' ban* sha render
the account as a non:performin' asset$
/B0 Pro"isionin' norms
Boo*s of sein' ban*
i$ +hen a ban* ses its non:performin' financia assets to other ban*s, the
same #i be remo"ed from its boo*s on transfer$
ii$ %f the sae is at a price beo# the net boo* "aue /3B=0 /i$e$, boo* "aue
ess pro"isions hed0, the shortfa shoud be debited to the profit and oss
account of that year$
iii$ %f the sae is for a "aue hi'her than the 3B=, the e&cess pro"ision sha
not be re"ersed but #i be utii)ed to meet the shortfa. oss on account of
sae of other non performin' financia assets$ Boo*s of purchasin' ban*
The asset sha attract pro"isionin' re,uirement appropriate to its asset
cassification status in the boo*s of the purchasin' ban*$
/C0 Accountin' of reco"eries Any reco"ery in respect of a non:performin' asset
purchased from other ban*s shoud first be adjusted a'ainst its ac,uisition cost$
-eco"eries in e&cess of the ac,uisition cost can be reco'ni)ed as profit$
/D0 Capita Ade,uacyB
1or the purpose of capita ade,uacy, ban*s shoud assi'n 4AAH ris* #ei'hts to the
non:performin' financia assets purchased from other ban*s$ %n case the non:
performin' asset purchased is an in"estment, then it #oud attract capita char'e for
mar*et ris*s aso$ 1or 3B1Cs the ree"ant instructions on capita ade,uacy #oud be
appicabe$
/E0 E&posure 3ormsB
The purchasin' ban* #i rec*on e&posure on the obi'or of the specific financia
asset$ 9ence these ban*s shoud ensure compiance #ith the prudentia credit
e&posure ceiin's /both sin'e and 'roup0 after rec*onin' the e&posures to the
obi'ors arisin' on account of the purchase$ 1or 3B1Cs the ree"ant instructions on
e&posure norms #oud be appicabe$
I$ Discosure -e,uirementsBBan*s #hich purchase non:performin' financia assets
from other ban*s sha be re,uired to ma*e the foo#in' discosures in the 3otes on
Accounts to their Baance sheetsB
5/
A$ Detais of non:performin' financia assets purchasedB /Amounts in -upees crore0
4$ /a0 3o$ of accounts purchased durin' the year
/b0 A''re'ate outstandin'
5$ /a0 (f these, number of accounts restructured durin' the year
/b0 A''re'ate outstandin'
B$ Detais of non:performin' financia assets sodB /Amounts in -upees crore0
4$ 3o$ of accounts sod
5$ A''re'ate outstandin'
D$ A''re'ate consideration recei"ed
C$ The purchasin' ban* sha furnish a ree"ant reports to -B%, C%B%2 etc$ in respect
of the non:performin' financia assets purchased by it$
+ritin' off 3PA
Studies ha"e sho#n that mana'ement of 3PAs rather than eimination is prudent$
%ndiaLs 'ro#th rate and ban* spreads are hi'her than #estern nations$ As a resut #e
can support a non:)ero e"e of 3PAs #hich baances the ris* "is:T:"is return
appropriate to the %ndian conte&t$
=arious steps ha"e been ta*en by the 'o"ernment to reco"er and reduce 3PAs$ Some
of them are$
4$ (ne time settement . compromise scheme
5$ 2o* adaats
D$ Debt -eco"ery Tribunas
7$ Securiti)ation and reconstruction of financia assets and enforcement of Security
%nterest Act 5AA5$
6$ Corporate -econstruction Companies
G$ Credit information on defauters and roe of credit information bureaus
3et 3PAs to ad"ances of the ban* is one of the hi'hest in the industry$ Ceary, better
3PA mana'ement hods the *ey to better profitabiity for ban*s$ Se"era
de"eopments ha"e ta*en pace atey, #hich su''est that 3PA mana'ement by PSBs
is ony i*ey to impro"e$ The introduction of an Act to enforce the security of ban*s,
the imminent settin' up of asset reconstruction companies and 'reater acti"ity in
corporate debt restructurin' au'ur #e$ %ndi"iduay, these factors may ha"e ony a
sma impact$ Cumuati"ey, thou'h, their impact on reco"ery of bad oans coud be
si)eabe$ (n the other hand, fresh accretion to bad oans is i*ey to continue$
51
Accordin' to recent estimate by C-%S%2, #ea* assets of PSBs are i*ey to be as hi'h
as their 'ross 3PAs$ %ndustry insiders do not paint such a
bea* picture$ Their estimates ran'e bet#een 6A per cent and GA per cent of 'ross
3PAs$ %n this conte&t, efforts at reco"ery of past 3PAs hod the *ey to reducin' the
o"era proportion of 3PAs$ %t is aso important to #rite:off oans utii)in' the
bonan)a in the form of profits on 'o"ernment securities$ %n 5AA5:AD, ony a handfu of
ban*s adopted such a prudent approach$ (ny State Ban* of %ndia, SB% and %ndian
("erseas Ban* competey utii)ed their profits to enhance pro"isions$
-e"ised 'uideines for compromise settement of 3on:Performin' Assets /3PAs0 of
pubic sector ban*s
;uideines for compromise settements of 3PAs up to -s$6$AA crore$
%n consutation #ith ;o"ernment of %ndia, it has been decided to 'i"e one
more opportunity to the borro#ers to come for#ard for settement of their
outstandin' dues$ 9ence fresh 'uideines are no# issued, #hich #i pro"ide a
simpified, non:discretionary and nondiscriminatory mechanism for compromise
settement of chronic 3PAs beo# the prescribed "aue ceiin'$ A pubic sector
ban*s shoud uniformy impement these 'uideines, so that ma&imum reai)ation
of dues is achie"ed from the stoc* of 3PAs #ithin the stipuated time$
The 'uideines #i not co"er cases of #ifu defaut, fraud and mafeasance$
The ban*s shoud identify cases of #ifu defaut, fraud and mafeasance and
initiate prompt action a'ainst them$ Accordin'y, in modification of 'uideines set
out in our Circuar of 5Ith <uy 5AAA, re"ised 'uideines for compromise
settement of dues reatin' to 3PAs of pubic sector ban*s in a sectors are 'i"en
beo# B
UiV ;uideines for compromise settement
of 3PAs up to -s$ 4A$AA crore
a0 The re"ised 'uideines #i co"er a 3PAs in a sectors irrespecti"e of the nature
of business, #hich ha"e become doubtfu or oss as on D4st March 5AAA #ith
outstandin' baance of -s$ 4A$AA crore and beo# on the cut off date$
b0 The 'uideines #i aso co"er 3PAs cassified as sub:standard as on D4st March
5AAA, #hich ha"e subse,uenty become doubtfu or oss$
c0 These 'uideines #i co"er cases on #hich the ban*s ha"e initiated action under
the Securiti)ation and -econstruction of 1inancia Assets and Enforcement of
52
Security %nterest Act, 5AA5 and aso cases pendin' before Courts . D-Ts . B%1-,
subject to consent decree bein' obtained from the Courts . D-Ts . B%1-$
d0 Cases of #ifu defaut, fraud and mafeasance #i not be co"ered$
e0 The ast date for receipt of appications from borro#ers #oud be as at the cose of
business on DAth Apri 5AAD$ The processin' under the re"ised 'uideines shoud be
competed by D4st (ctober 5AAD$
U ii V Settement 1ormua F amount and cut off date
a 0 3PAs cassified as Doubtfu or 2oss as on D4st March 5AAA
The minimum amount that shoud be reco"ered under the re"ised 'uideines in respect
of compromise settement of 3PAs cassified as doubtfu or oss as on D4st March
5AAA #oud be 4AAH of the outstandin' baance in the account as on the date of
transfer to the protested bis account or the amount outstandin' as on the date on
#hich the account #as cate'ori)ed as doubtfu 3PAs, #hiche"er happened earier, as
the case may be$
b 0 3PAs cassified as sub:standard as on D4st March 5AAA #hich became doubtfu or
oss subse,uenty The minimum amount that shoud be reco"ered in respect of 3PAs
cassified as sub:standard as on D4st March 5AAA #hich became doubtfu or oss
subse,uenty #oud be 4AAH of the outstandin' baance in the account as on the date
of transfer to the protested bis account or the amount as on the date on #hich the
account #as cate'orised as doubtfu 3PAs, #hiche"er happened earier, as the case
may be, pus interest at e&istin' Prime 2endin' -ate from 4
st
Apri 5AAA ti the date
of fina payment$
U iii V Payment The amount of settement arri"ed at in both the abo"e cases, shoud
preferaby be paid in one ump sum$ %n cases #here the borro#ers are unabe to pay
the entire amount in one ump sum, at east 56H of the amount of settement shoud
be paid upfront and the baance amount of I6H shoud be reco"ered in instaments
#ithin a period of one year to'ether #ith interest at the e&istin' Prime 2endin' -ate
from the date of settement up to the date of fina payment$
U i" V Sanctionin' Authority
The decision on the compromise settement and conse,uent sanction of #ai"er or
remission or #rite:off shoud be ta*en by the competent authority under the dee'ated
po#ers$
U " V 3on:discretionary treatment
53
The ban*s shoud foo# the abo"e 'uideines for compromise settement of a 3PAs
co"ered under the re"ised scheme, #ithout discrimination and a monthy report on the
pro'ress and detais of settements shoud be submitted by the concerned authority to
the ne&t hi'her authority and their Centra (ffice$ Ban*s shoud 'o for #ide pubicity
and aso 'i"e notice by 5Eth 1ebruary 5AAD to the ei'ibe defautin' borro#ers to
a"ai of the opportunity for one time settement of their outstandin' dues in terms of
these 'uideines$ Ade,uate pubicity to these 'uideines throu'h "arious means must
be ensured$
54
CHAPTER-III
Securiti)ation and -econstruction of 1inancia Assets and Enforcement of Security
%nterest Act, 5AA5 /SA-1AES% Act0
The Securiti)ation and -econstruction of 1inancia Assets and Enforcement of
Security %nterest Act, 5AA5 /SA-1AES%0 empo#ers Ban*s . 1inancia %nstitutions to
reco"er their non:performin' assets #ithout the inter"ention of the Court$ The Act
pro"ides three aternati"e methods for reco"ery of non:performin' assets, nameyB :
Securiti)ation
Asset -econstruction
Enforcement of Security #ithout the inter"ention of the Court
The pro"isions of this Act are appicabe ony for 3PA oans #ith outstandin' abo"e
-s$ 4$AA ac$ 3PA oan accounts #here the amount is ess than 5AH of the principa
and interest are not ei'ibe to be deat #ith under this Act$
3on:performin' assets shoud be bac*ed by securities char'ed to the Ban* by #ay of
hypothecation or mort'a'e or assi'nment$ Security %nterest by #ay of 2ien, ped'e,
hire purchase and ease not iabe for attachment under sec$GA of CPC, are not co"ered
under this Act
The Act empo#ers the Ban*B
To issue demand notice to the defautin' borro#er and 'uarantor, cain' upon
them to dischar'e their dues in fu #ithin GA days from the date of the notice$

To 'i"e notice to any person #ho has ac,uired any of the secured assets from
the borro#er to surrender the same to the Ban*$
To as* any debtor of the borro#er to pay any sum due or becomin' due to the
borro#er$
Any Security %nterest created o"er A'ricutura 2and cannot be proceeded
#ith$
55
%f on receipt of demand notice, the borro#er ma*es any representation or raises any
objection, Authori)ed (fficer sha consider such representation or objection carefuy
and if he comes to the concusion that such representation or objection is not
acceptabe or tenabe, he sha communicate the reasons for non acceptance +%T9%3
(3E +EEK of receipt of such representation or objection$
A borro#er . 'uarantor a''rie"ed by the action of the Ban* can fie an appea #ith
D-T and then #ith D-AT, but not #ith any ci"i court$ The borro#er . 'uarantor has
to deposit 6AH of the dues before an appea #ith D-AT$
%f the borro#er fais to compy #ith the notice, the Ban* may ta*e recourse to one or
more of the foo#in' measuresB
Ta*e possession of the security
Sae or ease or assi'n the ri'ht o"er the security
Mana'e the same or appoint any person to mana'e the same
-(2E (1 ASSET -EC(=E-> C(MPA3>/A-C0 !3DE- SA-1AES% ACT, 5AA5
!nder the SA-1AES% Act, 5AA5 an A-C may ac,uire an interest in financia assets of
any ban* . 1%$ The ban* . 1% may, if it considers appropriate, 'i"e a notice of
ac,uisition of financia assets by Asset -eco"ery Company to the concerned obi'or$
The borro#er cannot oppose this mo"e of the ban*s . 1%s$

BA3KE-S ha"e #ecomed the Supreme Court jud'ment uphodin' the
constitutiona "aidity of the Securiti)in' Act, e"en if it has pro"ided some
respite to defautin' borro#ers by annuin' Section 4I/50 of the Act as
unconstitutiona$ Earier, the pro"ision made it obi'atory for companies to
deposit I6 per cent of the defautin' amount #ith the court, if they appeaed
a'ainst the order of attachment of their assets under the SA-1AES% Act$

The SA-1AES% Act, 5AA5 stipuates that once the assets are ac,uired by any
Securiti)ation.Asset -econstruction Company no further reference can be
made by the Borro#er company to B%1-$ Pendin' reference before B%1-
5+
sha abate ony #hen any measure is ta*en by Asset -eco"ery Company
under Section F 4D/70 of the SA-1AES% Act, 5AA5$
Sections I /40 8 /50 of the SA-1AES% Act pro"ide for issue of Security
-eceipts after ac,uisition of any financia asset under sub:section /40 of
section 6 to ,uaified institutiona buyers /@%Bs0 and raisin' of funds from the
,uaified institutiona buyers by formuatin' schemes for ac,uirin' financia
assets$ The scheme for the purpose of offerin' Security -eceipts under sub:
section /40 or raisin' funds under subsection /50 of Section I of the
SA-1AES% Act may be in the nature of a trust to be mana'ed by the
Securiti)ation Company or -econstruction Company /SC.-C0$
%t aso incudes the foo#in' 'uideines
/i0 The trusts sha issue Security -eceipts ony to @%BsP and hod and administer the
financia assets for the benefit of the @%BsP
/ii0 The trusteeship of such trusts sha "est #ith the SC.-CP
/iii0 A SC or -C proposin' to issue S-s, sha, prior to such an issue, formuate a
poicy, duy appro"ed by the Board of Directors, pro"idin' for issue of Security
-eceipts under each scheme formuated by the trustP
/i"0 The poicy referred to in sub:para'raph /iii0 abo"e sha pro"ide that the Security
-eceipts issued #oud be transferabe .assi'nabe ony in fa"our of other @%Bs$ /@%Bs
is defined under Section 5/40 /u0 of the SA-1AES% Act0$

The objecti"e of these 'uideines is to enabe Securiti)ation
Company.-econstruction Company /SC.-C0 re'istered #ith the -eser"e
Ban* under the Securiti)ation and -econstruction of 1inancia Assets and
Enforcement of Security %nterest Act, 5AA5 /SA-1AES% Act0 to decare 3A=
of the Security -eceipts /S-s0 so that the @uaified %nstitutiona Buyers
/@%Bs0 can "aue their in"estment in S-s issued by the SC.-C in accordance
#ith appicabe 'uideines$ 1or the purpose of arri"in' at 3A=, the S-s shoud
be rated as ratin' is an important objecti"e too$

5,
;!%DE2%3ES (3 P-(=%S%(3%3;
4$ 2oss assetsB %n case of 2oss Assets 4AAHof the out standin' shoud be
pro"ided for re'ardess of security$
5$ Doubtfu Assets
Pro"isionin' norms
i0 4AAH to the e&tent to #hich the ad"ance is not reco"ered by the reai)abe "aue
of the security to #hich the ban* has a "aid recourse and the reai)abe "aue is
estimated on a reaistic basis$
ii0 %n re'ard to the second portion ,pro"ision may be made on the foo#in' basis,
at the rates ran'in' from 5AHto 4AAHof the secured portion dependin' upon the
period for #hich the asset has remained doubtfu$
Period for #hich the ad"ance has
remained in doubtfu cate'ory
Pro"ision re,uired /H0
!p to 4 year 5A
4 to D years DA
More than D years GA
/#ith effect from March D4,A60
I6
/#ith effect from March D4,AG0
4AA
/#ith effect from March D4,AI0
D$ Sub:standardB A 'enera pro"ision of 4AH on tota outstandin' shoud be made
#ithout ma*in' any ao#ance for 'uarantee co"er and securities a"aiabe$
7$ Standard AssetsB A 'enera pro"ision of $56H of the outstandin' is re,uired to be
made at 9($ Branches need not cacuate pro"ision on standard assets$
5-
CHAPTER-I.
A3A2>S%S (1 DATA
Loan asset C(a*it7
As on
B0$DB$DE
As on
B0$DB$DF
As on
B0$DB$DG
ross ad6an+e 00H01D$23 3111FD$G1 23FGDF$2
ross NPA BBGD$E1 01FBE$B3 022FG
Red(+tion 32G3 33G0$20 F1H3
Additions 3GH3 2B2D$02 00D02
ross NPA I 1$G1I B$D3 I 1$F3 I
Net NPA 0F00$3F E313$B3 G221
Net NPA I 0$2HI 0$EF I 0$EB I
5.
ross NPA/SBI 4IS A 4IS 'eer 5anks
ross NPA on
B0$DB$1DDG
ross NPA
I as on
B0$DB$1DDG
Net NPA I as on
B0$DB$1DDG
SBI 022FG 1$F3 0$EB
Canara Bank 131B 0$2H 0$DG
Bank of India 1G2B 0$HF D$33
Bank of Baroda B21B 0$F3 D$3E
+/
Road ma' for ne<t 2 7ears to im'ro6e *oan asset C(a*it7
-Rs$in +rores.
B0$B$DG
A+t(a*
B0$B$0D
P*an
B0$B$00
P*an
B0$B$01
P*an
B0$B$01
P*an
B0$B$0B
P*an
ross
ad6an+e
23FGDF H2FHFG EGD31H G3F200 00BF10B 0BH2F22
ross
NPA
022FG 0EDDD 0F2DD 1D1DD 102DD 11HDD
ross
NPA I
1$F3 1$2F 1$B3 1$01 0$FF 0$H2
Net NPA
I
0$EB 0$2E 0$31 0$1F 0$0B D$GG
+1
Fo**o8ing are t%e P(5*i+ se+tor Banks in+*(ded for t%e Ratio ana*7sis /
4$ Aahabad Ban*
5$ Andhra Ban*
D$ Ban* of Baroda
7$ Ban* of %ndia
6$ Ban* of Maharashtra
G$ Canara Ban*
I$ Centra Ban* of %ndia
E$ Corporation Ban*
C$ Dena Ban*
4A$ %ndian Ban*
44$ %ndian ("erseas ban*
45$ (rienta Ban* of Commerce
4D$ Punjab 3ationa Ban*
47$ Punjab and Sind Ban*
46$ State Ban* of %ndia
4G$ State Ban* of %ndia 8 its associates$
State Ban* of 9yderabad
State Ban* of %ndia
State Ban* of %ndore
State Ban* of Mysore
State Ban* of Saurashtra
State Ban* of Tra"ancore
4I$ Syndicate Ban*
4E$ !C( Ban*
4C$ !nion Ban* of %ndia /!B%0
5A$ =ijaya Ban*
+2
RATIO ANALASIS
ROSS NPA RATIO/

;ross 3PA -atio is the ratio of 'ross 3PA to 'ross ad"ances of the Ban*$;ross
3PA is the sum of a oan assets that are cassified as 3PA as per the -B%
'uideines$ The ratio is to be counted in terms of percenta'e and the formua for
;3PA is as foo#sB
ross NPA ratio J -ross NPA > ross ad6an+es.K0DD
ross NPAs to ross Ad6an+es
Source B -eser"e Ban* of %ndia
+3
S$ 3o$
3ame of Ban* 5AAC 5A4A 5A44
0 1 B 3 2
Nationa*i=ed Bank
4 Aahabad Ban* D$C 5$G 5$A
5 Andhra Ban* 4$C 4$7 4$4
D Ban* of Baroda D$C 5$6 4$E
7 Ban* of %ndia D$I 5$7 4$I
6 Ban* of Maharashtra 6$6 D$6 5$G
G Canara Ban* 5$D 4$6 4$D
I Centra Ban* of %ndia G$E 7$E D$5
E Corporation Ban* 5$G 5$4 4$6
C Dena Ban* G$7 7$4 5$7
4A %ndian Ban* 5$C 4$C 4$5
44 %ndian o"erseas ban* D$7 5$D 4$G
45 (rienta Ban* of
Commerce
G$A D$5 5$D
4D Punjab 8 Sind Ban* C$G 5$7 A$I
47 Punjab 3ationa Ban* 7$4 D$6 5$I
46 Syndicate ban* 7$A D$A 5$I
4G !C( Ban* D$D D$5 D$A
4I !nion Ban* of %ndia D$E 5$C 5$5
4E !nited Ban* of %ndia 7$I D$G 5$I
4C =ijaya Ban* D$5 5$D 4$G
5A State Ban* of %ndia D$C 5$C D$A
54 State Ban* of Bi*aner 8
<aipur
5$7 5$5 4$I
55 State Ban* of 9yderabad 5$4 4$5 A$C
5D State Ban* of %ndore D$A 4$C 4$7
57 State Ban* of Mysore D$D 5$D 4$I
56 State Ban* of Patiaa 5$7 4$E 4$7
5G State Ban* of Saurashtra 5$A 4$5 4$6
5I State Ban* of Tra"ancore D$5 5$5 5$A
Findings from t%e a5o6e ta5*e /
The tabe abo"e indicates the ,uaity of credit portfoio of the ban*s$ 9i'h
'ross 3PA ratio indicates the o# credit portfoio of ban* and "ice:a:"ersa$
+e can see from the abo"e tabe that the Centra Ban* of %ndia has the
hi'her 'ross 3PA ratio of D$5 H foo#ed by the State Ban* of %ndia 8
!C( Ban* #ith D$A H$ The Punjab 3ationa Ban*, Syndicate Ban* of
%ndia and united Ban* of %ndia aso ha"e hi'her 'ross 3PA ratio #ith 5$IH
in 5A44$
+hereas the state Andhra Ban* , Punjab 8 Sind Ban* , State Ban* of
hyderabad sho#ed o#er ratio #ith 4$4 H, A$I H and A$CH in the year 5A44
$

3$1 NET NPA RATIO/

The net 3PA percenta'e is the ratio of net 3PA to net ad"ances, in #hich the
pro"ision is to be deducted from the 'ross ad"ance$ The pro"ision is to be made for
3PA account$ The formua for that is B
-i. Net NPA Ratio J -ross NPA&Pro6ision >ross Ad6an+es&Pro6isions. K 0DD
Net NPA to ross Ad6an+es
S$ No$
Name of Bank 1DDG 1D0D 1D00
4 5 B 3 2
Nationa*i=ed
Bank
4 Aahabad
Ban*
A$E7 4$AI A$EA
5 Andhra Ban* A$57 A$4I A$46
D Ban* of Baroda A$EI A$GA A$7I
7 Ban* of %ndia 4$7C A$I7 A$65
6 Ban* of
Maharashtra
5$AD 4$54 A$EI
G Canara Ban* 4$45 A$C7 A$E7
I Centra Ban*
of %ndia
5$6C 4$IA 4$76
+4
E Corporation
Ban*
A$G7 A$7I A$D5
C Dena Ban* D$A7 4$CC A$C7
4A %ndian Ban* A$IC A$D6 A$57
44 %ndian o"erseas
ban*
A$G6 A$66 A$GA
45 (rienta Ban*
of Commerce
A$7C A$7C A$CC
4D Punjab 8 Sind
Ban*
5$7D A$GG A$DI
47 Punjab
3ationa Ban*
A$5C A$IG A$G7
46 Syndicate ban* A$EG A$IG A$CI
4G !C( Ban* 5$4A 5$47 4$CE
4I !nion Ban* of
%ndia
4$6G A$CG A$4I
4E !nited Ban* of
%ndia
4$C6 4$6A 4$4A
4C =ijaya Ban* A$E6 A$6C A$6I
5A State Ban* of
%ndia
4$EE 4$6G 4$IE
54 State Ban* of
Bi*aner 8
<aipur
4$4E 4$AC A$ED
55 State Ban* of
9yderabad
A$DG A$55 A$4G
5D State Ban* of
%ndore
4$ED 4$A7 A$ID
57 State Ban* of
Mysore
A$I7 A$76 A$7D
56 State Ban* of
Patiaa
A$CC A$ED A$GA
5G State Ban* of
Saurashtra
4$4G A$IA A$C4
5I State Ban* of
Tra"ancore
4$7I 4$AE A$C7
9i'h 3PA ratio indicates the hi'h ,uantity of ris*y assets in the Ban*s for
#hich no pro"ision are made$
1rom the tabe it becomes cear that the 3PA ratio of amost a the Ban*s
ha"e been impro"ed ,uite #e as compared to the pre"ious year$
+5
The !C( ban* has the hi'hest 3PA ratio of 4$CE H foo#ed by the State
Ban* of %ndia #ith 4$IE H 8 Centra Ban* of %ndia #ith 4$76H $ The
Andhra Ban* has sho#ed the o#est 3PA ratio $46H and State Ban* of
9yderabad, !nion Ban* of %ndia ha"e aso sho#ed o#er 3PA ratio #ith $
4G H and $4I H in 5A44$
PRO4ISION RATIO/

Pro"isions are to be made to *eep safety a'ainst the 3PA, 8 it directy affect on the
'ross profit of the Ban*s$ The pro"ision -atio is nothin' but tota pro"ision hed
for 3PA to 'ross 3PA of the Ban*s$ The formua for that is,
/i0 Pro"ision -atio W /Tota Pro"ision.;ross 3PA0R4AA
/ii0 U Additiona 1ormuaeB 3et 3PA W ;ross 3PA F Pro"ision
Therefore , Pro"ision W ;ross 3PA F 3et 3PA V
Pro6ision Ratio
S$ No$
4 5 B 3 2
Nationa*i=ed
Bank
4 Aahabad
Ban*
IC$54 6C$IE GA$7D
5 Andhra Ban* EI$CC EE$AC E6$6E
D Ban* of Baroda IE$D5 IG$A5 I6$AC
7 Ban* of %ndia GA$EC GC$C4 GC$D7
6 Ban* of
Maharashtra
G7$G4 GG$4E DG$7E
G Canara Ban* 6A$C6 DI$CD DG$7E
I Centra Ban* of
%ndia
GD$IE G6$EG 67$EC
E Corporation
Ban*
I6$74 II$5I IE$5E
C Dena Ban* 67$7 6A$CC G5$DI
4A %ndian Ban* ID$6C E4$5E IC$C6
44 %ndian o"erseas
ban*
E$7 IG$CE GD$6G
45 (rienta Ban*
of Commerce
C5$5C E6$4G 6I$CA
4D Punjab 8 Sind
Ban*
IG$6E ID$64 6A$6E
47 Punjab CD$D IE$6C II$5C
++
3ationa Ban*
46 Syndicate ban* IC$56 I7$CD G7$IC
4G !C( Ban* DG$75 DD$5 DD$EI
4I !nion Ban* of
%ndia
GA$56 GI$EC C5$5C
4E !nited Ban* of
%ndia
6C$5I 6C$57 6C$IE
4C =ijaya Ban* ID$G6 I7$7E G7$7C
1D State Ban* of
%ndia
7E$CE
7I$74
75$4G
54 State Ban* of
Bi*aner 8
<aipur
64$E6 64$EE 75$4G
55 State Ban* of
9yderabad
ED$D6 E5$65 E4$ID
5D State Ban* of
%ndore
DC$A5 76$CD 7C$GC
57 State Ban* of
Mysore
IE$5E EA$7E I6$4A
56 State Ban* of
Patiaa
DI$6E 67$6D 6E$D7
5G State Ban* of
Saurashtra
DI$6E DG$G6 DG$I4
5I S tate Ban* of 67$GE 6A$76 6D$4A
Findings from t%e a5o6e ta5*e
This -atio indicates the de'ree of safety measures adopted by the Ban*s$
%t has direct bearin' on the profitabiity, Di"idend and safety of
sharehodersK fund$
%f the pro"ision ratio is ess, it indicates that the Ban*s has made under
pro"ision$
The hi'hest pro"ision ratio is sho#ed by !nion Ban* of %ndia #ith C5$5CH
foo#ed by Andhra Ban* of commerce #ith E6$6E H 8 State Ban* of
9yderabad #ith E4$IDH $ in the year 5A44 $
The o#est pro"ision ratio is sho#ed !C( Ban* #ith ony DD$EI H
foo#ed by Ban* of Maharastra 8 Canara ban* +ith DG$7EH

+,
3$3 PROBLEM ASSET RATIO/
%t is the ratio of 'ross 3PA to tota asset of the ban*$ The formua for that is"
P&o/l+% A((+0 R!0'o 1 2G&o(( NPA(3To0!l A((+0( 4 5 166
P&o/l+% !((+0 &!0'o
S$ No$
4 5 B 3 2
Nationa*i=ed
Bank
4 Aahabad
Ban*
5$47 4$G4 4$54
5 Andhra Ban* 4$AI A$ED A$GG
D Ban* of Baroda 5$4A A$47 4$4A
7 Ban* of %ndia 5$5A 4$7E 4$AI
6 Ban* of
Maharashtra
D$A5 5$4A 4$6C
G Canara Ban* 4$D6 A$CA A$IE
I Centra Ban*
of %ndia
D$6C 5$IG 4$CA
E Corporation
Ban*
4$67 4$4E A$EE
C Dena Ban* D$6I 5$DG 4$7E
4A %ndian Ban* 4$7A A$CI A$IA
44 %ndian o"erseas
ban*
4$GC 4$DG A$CE
45 (rienta Ban*
of Commerce
D$D4 4$CG 4$74
4D Punjab 8 Sind
Ban*
D$D4 4$D5 A$77
47 Punjab
3ationa Ban*
7$C7 5$AE 4$GI
46 Syndicate ban* 5$4G D$IC A$4G
+-
4G !C( Ban* A$57 5$A4 4$E7
4I !nion Ban* of
%ndia
4$AA 4$E5 4$D7
4E !nited Ban* of
%ndia
5$D6 4$CD 4$7A
4C =ijaya Ban* A$C4
1D State Ban* of
%ndia
4$C6 4$IG 4$IE
54 State Ban* of
Bi*aner 8
<aipur
4$C6 4$D7 4$$AG
55 State Ban* of
9yderabad
47$44 A$I4 A$6A
5D State Ban* of
%ndore
4$45 4$4C C$AG
57 State Ban* of
Mysore
4$I6 4$75 4$AE
56 State Ban* of
Patiaa
5$A6 4$4A A$EE
5G State Ban* of
Saurashtra
4D$4I A$G6 A$E5
5I State Ban* of
Tra"ancore
A$C6 4$75 A$GC
1indin's from the abo"e tabe B
+e determine the percenta'e of assets out of tota assets . ad"ances that are
i*ey to become the 3on performin' Assets as probematic assets $
That -atio impies that the both abo"e ban*s ha"e the hi'hest probabiity of
creatin' 3PAKs in the near future $
CAPITAL A"EL9ACA RATIO
+.
Capita Ade,uacy -atio can be defined as ratio of the capita of the Ban*, to its
assets, #hich are #ei'hted.adjusted accordin' to ris* attached to them i$e$
Ca'ita* AdeC(a+7 Ratio J Ca'ita*> Risk ?eig%ted AssetsK 0DD
Ca'ita* adeC(a+7 ratio
,/
,1
S$ No$
4 5 B 3 2
4 Aahabad
Ban*
4D$DI 4$AI A$EA
5 Andhra Ban* 47$AA A$4I A$46
D Ban* of
Baroda
4D$G6 A$GA A$7I
7 Ban* of %ndia 4A$I6 A$C6 A$65
6 Ban* of
Maharashtra
44$5I 4$54 A$EI
G Canara Ban* 44$55 A$C7 A$E7
I Centra Ban*
of %ndia
44$AD 4$IA 4$76
E Corporation
Ban*
4D$A5 A$7I A$D5
C Dena Ban* 4A$G5 4$CC A$C7
4A %ndian Ban* 4D$4C A$D6 A$57
44 %ndian o"erseas
ban*
4D$A7 A$66 A$GA
45 (rienta Ban*
of Commerce
44$A7 A$7C A$CC
4D Punjab 8 Sind
Ban*
45$ED A$GG A$DI
47 Punjab
3ationa Ban*
44$C6 A$IG A$G7
46 Syndicate ban* 44$ID A$IG A$CI
4G !C( Ban* 44$45 5$47 4$CE
4I !nion Ban* of
%ndia
44$74 A$CG A$4I
4E !nited Ban* of
%ndia
4D$45 4$6A 4$4A
4C =ijaya Ban* 4D$45 A$6C A$6I
1D State Ban* of
%ndia
44$EE 4$6G 4$IE
54 State Ban* of
Bi*aner 8
<aipur
45$AE 4$AC A$ED
55 State Ban* of
9yderabad
45$AE A$55 A$4G
5D State Ban* of
%ndore
44$7A 4$A7 A$ID
57 State Ban* of
Mysore
44$DI A$76 A$7D
56 State Ban* of
Patiaa
4D$GI A$ED A$GA
5G State Ban* of
Saurashtra
45$AD A$IA A$C4
Source B -eser"e Ban* of india
The capita ade,uacy ratio is important for them to maintain as per the
ban*in' re'uations$
Each ban* needs to create the capita -eser"e to compensate the 3on
Performin' Assets$
Each Asset has 'i"en a ris* #ei'hta'e as per -B% 'uideines
-is* #ei'hted Asset W Asset R -is* +ei'hta'e
So, More the -is* #ei'hted Assets are , Ban* has to maintain more capita $
As far as this ratio is concerned the !C( Ban* has sho#n much appreciated
resut by ac,uirin' the ratio of 4$CE H foo#ed by the State Ban* of %ndia and
Centra Ban* of %ndia ha"in' ratios of 4$IEH and 4$76H $
S9B&STAN"AR" ASSETS RATIO
%t is the ratio of Tota Substandard Assets to ;ross 3PA of the ban*$
S(5standard Assets RatioJ tota* s(5standard assets >ross NPAsK0DD
%t indicates scope of up 'radation.impro"ement in 3PA$
9i'her substandard asset ratio means that in #hoe 3PA the sub standard ratio
has major proportion, #hich indicates that there is a hi'h scope for ad"ance
up 'radation or impro"ement because it #i be "ery easy to reco"er the oan
as minimum duration of defaut$
"O9BTF9L ASSET RATIO/
%t is the ratio of Tota Doubtfu Assets to ;ross 3PAs of the ban*$
"o(5tf(* Asset Ratio JTota* do(5tf(* assets>ross NPAsK0DD
%t indicates the scope of compromise for 3PA reduction$
LOSS ASSET RATIO/
%t is the ratio of tota oss assets to ;ross 3PA of the ban*$
Loss Asset RatioJTota* Loss Assets >ross NP AK 0DD
%t indicates the proportion of bad oans in the ban*s$
9o#e"er if the ratio increases in the recent year, #hich is detrimenta to the
ban*$ The ban* must ta*e necessary steps to contro this ratio, as it is the
indication that there is increasin' incidence of erosion of securities and
frauduent 2oan Accounts in the ban*$
ross NPA Ratio for 1D00 & Findings
,2

Findings from t%e a5o6e ta5*e/
9i'h 'ross 3PA ratio indicates the o# credit portfoio of ban* and "ice:a:
"ersa$
+e can see from the abo"e tabe that the Centra Ban* of %ndia has the
hi'her 'ross 3PA ratio of D$5 H foo#ed by the State Ban* of %ndia 8
!C( Ban* #ith D$A H$ The Punjab 3ationa Ban*, Syndicate Ban* of
%ndia and united Ban* of %ndia aso ha"e hi'her 'ross 3PA ratio #ith 5$IH
in 5A44$
+hereas the state Andhra Ban* , Punjab 8 Sind Ban* , State Ban* of
hyderabad sho#ed o#er ratio #ith 4$4 H, A$I H and A$CH in the year 5A44
$
Net NPA Ratio for 1D00 M Findings
,3
This ratio indicates the de'ree of ris* in the portfoio of the ban*s$ 9i'h
3PA ratio indicates the hi'h ,uantity of ris*y assets in the Ban*s for #hich
no pro"ision are made$
1rom the tabe it becomes cear that the 3PA ratio of amost a the Ban*s
ha"e been impro"ed ,uite #e as compared to the pre"ious year$
The !C( ban* has the hi'hest 3PA ratio of 4$CE H foo#ed by the State
Ban* of %ndia #ith 4$IE H 8 Centra Ban* of %ndia #ith 4$76H $ The
Andhra Ban* has sho#ed the o#est 3PA ratio $46H and State Ban* of
9yderabad, !nion Ban* of %ndia ha"e aso sho#ed o#er 3PA ratio #ith $
4G H and $4I H in 5A44
B$. Pro6isioning Ratio & Findings
,4
Findings from t%e a5o6e ta5*e
This -atio indicates the de'ree of safety measures adopted by the Ban*s$
%t has direct bearin' on the profitabiity, Di"idend and safety of
sharehodersK fund$
%f the pro"ision ratio is ess, it indicates that the Ban*s has made under
pro"ision$
The hi'hest pro"ision ratio is sho#ed by corporation Ban* #ith !nion
Ban* of %ndia #ith C5$5CH foo#ed by Andhra Ban* of commerce #ith
E6$6E H 8 State Ban* of 9yderabad #ith E4$IDH $ in the year 5A44 $
The o#est pro"ision ratio is sho#ed !C( Ban* #ith ony DD$EI H
foo#ed by Ban* of Maharastra 8 Canara ban* +ith DG$7EH

3$. Pro5*em Asset Ratio & Findings
,5
+e determine the percenta'e of assets out of tota assets . ad"ances that are
i*ey to become the 3on performin' Assets as probematic assets $
1rom the abo"e tabe it becomes cear that Punjab and Sind Ban* and Dena
Ban* ha"e the hi'h ratio of E$GH and E$AH$
That -atio impies that the both abo"e ban*s ha"e the hi'hest probabiity of
creatin' 3PAKs in the near future $
,+
Ca'ita* AdeC(a+7 Ratio & Findings
The capita ade,uacy ratio is important for them to maintain as per the
ban*in' re'uations$
Each ban* needs to create the capita -eser"e to compensate the 3on
Performin' Assets$
Each Asset has 'i"en a ris* #ei'hta'e as per -B% 'uideines
-is* #ei'hted Asset W Asset R -is* +ei'hta'e
So, More the -is* #ei'hted Assets are , Ban* has to maintain more capita $
As far as this ratio is concerned the !C( Ban* has sho#n much appreciated
resut by ac,uirin' the ratio of 4$CE H foo#ed by the State Ban* of %ndia and
Centra Ban* of %ndia ha"in' ratios of 4$IEH and 4$76H $

,,
CHAPTER-.
Re+ommendations of t%e st(d7
Throu'h -B% has introduced number of measures to reduce the probem of
increasin' 3PAs of the ban*s such as CD- mechanism$ (ne time settement
schemes, enactment of S-1AES% act, etc$ A ot of measures are desired in terms of
effecti"eness of these measures$ +hat % #oud i*e to su''est for reducin' the
e"outions of the 3PAs of Pubic Sector Ban*s are as under$
/40 Each ban* shoud ha"e its o#n independent credit ratin' a'ency #hich shoud
e"auate the financia capacity of the borro#er before than credit faciity$
/50 The credit ratin' a'ency shoud re'uary e"auate the financia condition of the
cients$
/D0 Specia accounts shoud be made of the cients #here monthy oan
concentration reports shoud be made$
/70 %t is aso #ise for the ban*s to carryout specia in"esti'ati"e audit of a
financia and business transactions and boo*s of accounts of the borro#er company
#hen there is possibiity of the di"ersion of the funds and mismana'ement$
/60 The ban*s before pro"idin' the credit faciities to the borro#er company shoud
anay)e the major heads of the income and e&penditure based on the financia
performance of the comparabe companies in the industry to identify si'nificant
"ariances and see* e&panation for the same from the company mana'ement$ They
shoud aso anay)e the current financia position of the major assets and iabiities$
/G0 Ban*s shoud e"auate the S+(T anaysis of the borro#in' companies i$e$ ho#
they #oud face the en"ironmenta threats and opportunities #ith the use of their
stren'th and #ea*ness, and #hat #i be their possibe future 'ro#th in concerned
to financia and operationa performance$
/I0 %ndependent settement procedure shoud be more strict and faster and the
decision made by the settement committee shoud be bindin' both borro#ers and
enders and any one of them faiin' to foo# the decision of the settement
committee shoud be punished se"erey
/E0 There shoud be proper monitorin' of the restructured accounts because there
is e"ery possibiity of the oans sippin' into 3PAs cate'ory a'ain$
,-
/C0 Proper trainin' is important to the staff of the ban*s at the appropriate e"e
#ith on'oin' process$ That ho# they shoud dea the probem of 3PAs, and #hat
continues steps they shoud ta*e to reduce the 3PAs$
/4A0 +ifu Defaut of Ban* oans shoud be made a Crimina (ffence$
/440 3o oan is to be 'i"en to a ;roup #hose one or the other underta*in' has
become a Defauter$
RECOMMEN"ATION
% #oud su''est D #ays of so"in' this probem of 3PAs of SB%$ They are
-ecapitai)ation of ban*s #ith ;o"ernment aid,
Disposa and #rite off of 3PAs,
%ncreased re'uations
,.
CHAPTER-.I
Con+*(sion of t%e St(d7
A stron' ban*in' sector is important for a fourishin' economy$ The faiure of the
ban*in' sector may ha"e an ad"erse impact on other sectors$ ("er the years, much
has been ta*ed about 3PAs and the emphasis so far has been ony on identification
and ,uantification of 3PAs rather than on #ays to reduce and up'rade them$ Ta*in'
about SB% the mana'ers of different branches 'eneray sanction the oans$ %n the
chan'ed conte&t of ne# prudentia norms and emphasis on ,uaity endin' and
profitabiity, mana'ers shoud ma*e it ampy cear to potentia borro#ers that ban*s
resources are scarce and these are meant to finance "iabe "entures so that these are
repaid on time and ree"ant to other needy borro#ers for impro"in' the economic ot
of ma&imum number of househods$ 9ence, seection of ri'ht borro#ers, "iabe
economic acti"ity, ade,uate finance and timey disbursement, correct end use of funds
and timey reco"ery of oans is absoutey necessary pre conditions for pre"entin' or
minimi)in' the incidence of ne# 3PAs for SB%$
4$ The 3PA is one of the bi''est probems that the Pubic Sector Ban*s are facin'
today is the probem of nonperformin' assets$ %f the proper mana'ement of the
3PAs is not underta*en it #oud hamper the business of the ban*s$
5$ %n absoute terms, the ast three years ha"e seen an increase in the net
3PAs of 56 pubic sector ban*s by 57 per cent$ Accordin' to the numbers, the ast
year it sa# a 4I percent rise in the stic*y assets$
D$ The ar'est pubic sector ender, SB%, has seen an increase in the net 3PAs in
5A4A:44$
7$ As the 'oba so#do#n has crept into the economy, ban*ers fee that in more
oans are 'oin' to turn bad in the comin' ,uarters and therefore they #ant -B% to
rea& the deadine for oan reconstruction$
6$ Due to -ecession 8 so#do#n in the %ndian economy #oud resut in
emer'in' 3PA Xs for the pubic sector ban*s from te&ties, rea estate, retai,
e&ports and auto sectors$
-/
G$ The -B% has aso been tryin' to ta*e number of measures but the ratio of 3PAs
is not decreasin' of the ban*s$ The ban*s must find out the measures to reduce
the e"o"in' probem of the 3PAs$
I$ The reduction of the 3PAs #oud hep the ban*s to boost up their profits,
smooth recycin' of funds in the nation$ This #oud hep the nation to de"eop
more ban*in' branches and de"eopin' the economy by pro"idin' the better
financia ser"ices to the nation$
E$ %f the concept of 3PAs is ta*en "ery i'hty it #oud be dan'erous for the
%ndian ban*in' sector$ The 3PAs #oud destroy the current profit, interest income
due to ar'e pro"isions of the 3PAs, and #oud affect the smooth functionin' of
the recycin' of the funds$
4A$0 As a resut of the 3PAKs o#ners do not recei"e a mar*et return on their
capita$ %n the #orst case, if the ban* fais, o#ners ose their assets 8 this may
affect a broad poo of sharehoders 8 act as a rain on Profitabiity$
44$0 Ban*s aso redistribute osses to other borro#ers by char'in' hi'her interest
rates $2o#er deposit rates and hi'her endin' rates repress sa"in's and financia
mar*ets, #hich hampers economic 'ro#th$
45$0 +hen many borro#ers fai to pay interest, ban*s may e&perience i,uidity
shorta'es $These shorta'es can jam payments across the country and as a resut
non performin' oans may spi o"er the ban*in' system and contract the money
stoc*, #hich may ead to economic contraction$
4D$0 Ban*s need to create capita reser"e to #rite off the mountin' 3PAKs burden $
47$0 A Man #ithout money is i*e a bird #ithout #in'sM, the -umanian pro"erb
insists the importance of the money$ A ban* is an estabishment, #hich deas #ith
money$ The basic functions of Commercia ban*s are the acceptin' of a *inds of
deposits and endin' of money$ %n 'enera there are se"era chaen'es confrontin'
the commercia ban*s in its day today operations$ The main chaen'e facin' the
commercia ban*s is the disbursement of funds in ,uaity assets /2oans and
Ad"ances0 or other #ise it eads to 3on:performin' assets$M
Limitations of t%e st(d7
The imitations that % fet in my study areB
-1
%t #as critica for me to 'ather the financia data of the e"ery ban* of the
Pubic Sector Ban*s so the better e"auations of the performance of the ban*s
are not possibe$
Since my study is based on the secondary data, the practica operations as
reated to the 3PAs are adopted by the ban*s are not earned$
Since the %ndian ban*in' sector is so #ide so it #as not possibe for me to
co"er a the ban*s of the %ndian ban*in' sector$
Pro"ision for the cassification of the Assets . 3PAKs differs #ithin each pubic
sector ban* 8 this information is not a"aiabe Pubicy $
The -B% norms for the cassification of assets . 3PAKs are a"aiabe on a pay
site 8 not pubicy a"aiabe throu'h any source $
-2
BIBLIOGRAPHY
?e5sites/
http..B###$rbi$or'$com
http..B###$money$radiff$com
http..B###$economictimes$indiatimes$com
###$'oo'e$co$in
###$sbi$co$in
-3

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